Marks and Spencer Group PLC Annual Report 2016

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FY2016 Annual Report · Marks and Spencer Group PLC

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ANNUAL REPORT &
FINANCIAL STATEMENTS
2016

FINANCIAL OVERVIEW

GROUP PERFORMANCE (52 WEEKS)

STRATEGIC PRIORITIES FOR THE YEAR

GROUP REVENUE

£10.4bn

+0.8%

UNDERLYING PROFIT BEFORE TAX

GROUP PROFIT BEFORE TAX

UK FOOD REVENUE

£5.4bn

+3.6%

CLOTHING & HOME
GROSS MARGIN

£684.1m

+3.5%

£483.3m

-19.5%

55.1%

+245bps

INTERIM AND FINAL DIVIDEND

6.8p + 11.9p1 = 18.7p

+0.7p

SPECIAL DIVIDEND

4.6p

UNDERLYING GROUP EARNINGS PER SHARE

BASIC EARNINGS PER SHARE

34.8p

+5.1%

24.6p

-17.2%

UK CLOTHING & HOME
REVENUE

£3.9bn

-2.2%

FREE CASH FLOW
PRE SHAREHOLDER RETURNS

£539.3m

+2.9%

1. Subject to shareholder approval.

ABOUT OUR REPORTING

53 WEEK YEAR This year we are reporting
on the 53 weeks to 2nd April 2016,
as every six years an additional week
is included to ensure that the year-
end date stays in line with the end of
March. In order to provide a meaningful
comparison with last year’s 52 week
period, all ﬁ nancial movements are
reported on a 52 week basis, and
excluding the 53rd week, unless
otherwise noted. All balance sheet
and cash ﬂ ow information is reported
as at the year-end date.

Full details of the 53 week results can be

found in the Financial Review p23

INTEGRATED REPORTING We have set out
to produce an Annual Report that meets
the guiding principles of the Integrated
Reporting Council framework by
developing our reporting in several key
areas. These include: improvements to
our business model to better show the

eff ective use of the resources and
relationships relevant to M&S; a new,
more detailed look at our business
model and how it drives value creation
through the interdependencies within
our business; mapping our principal risks
against our business model to
demonstrate the connectivity between
the two; and the continued linkage
between our KPIs and remuneration.

ONLINE INFORMATION We provide
comprehensive company information
for our shareholders on our website,
including digital versions of all our
Annual Reports. We encourage all our
shareholders to receive information
electronically as it enables us to keep
them informed about company news and
trading updates throughout the year.

Follow the ‘Electronic Shareholder

Communication’ link at
marksandspencer.com/investors

INVESTOR RELATIONS APP We have
upgraded our Investor Relations app so
that it is now optimised for use across
all devices and on all operating systems,
including iOS and Android. The app
displays the latest share price information
and corporate news and contains ﬁ nancial
reports, presentations and videos.

NAVIGATING THE REPORT In this document
you will see a series of icons that
demonstrate how we’ve integrated
information about our business model
and performance with details of our
principal risks, remuneration and Plan A.
The icons also tell you where to look for
further information, either in this report
or in our 2016 Plan A Report.

Our Plan A Report can be viewed at

marksandspencer.com/plana2016

PLAN A

RISK

LOOKING
AHEAD

LINKED TO
REMUNERATION

01
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

INTRODUCTION

M&S IS ONE OF THE
UK’S LEADING RETAILERS, WITH
1,382 STORES WORLDWIDE.
WE ARE COMMITTED TO
DELIVERING SUSTAINABLE VALUE
FOR OUR STAKEHOLDERS AND
MAKING EVERY MOMENT SPECIAL
THROUGH THE HIGH QUALITY, OWN
BRAND FOOD, CLOTHING AND HOME
PRODUCTS WE OFFER IN OUR STORES
AND ONLINE, BOTH IN THE UK
AND INTERNATIONALLY.

WHAT’S IN THIS REPORT?

OUR BUSINESS

GOVERNANCE

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02 At a glance
04 Chairman’s statement
06

Chief Executive’s strategic
overview

10 Creating sustainable value
12 Connected value

OUR PERFORMANCE

14 Marketplace
15 Operating performance
18 Key performance indicators
22 Financial review
26 Our people
27 Risk management

*
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30 Chairman’s Governance overview
32 Leadership & eff ectiveness
32 Our Board
40 Nomination Committee Report

42 Accountability
42 Audit Committee Report
47 Risk in Action
49 Stakeholder engagement

50 Remuneration
50 Remuneration overview
52 Remuneration at a glance
54 Summary Remuneration Policy
58 Remuneration Report
72 Pensions governance

73 Other disclosures

78 Independent auditor’s report

FINANCIAL STATEMENTS

Consolidated ﬁ nancial
statements

90 Notes to the ﬁ nancial statements
122 Company ﬁ nancial statements
123 Notes to the Company ﬁ nancial

statements

126 Group ﬁ nancial record

127 SHAREHOLDER INFORMATION*

* Directors’ report

Shareholder information forms part of the
Directors’ Report.

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02
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

OUR BUSINESS

AT A GLANCE

FOOD

CLOTHING & HOME

Quality, innovation and choice are
the hallmarks of our Food business,
which accounts for 58% of our turnover.
We have 914 UK stores, including
222 owned and 349 franchise Simply Food
stores. Our customers turn to us for
innovative, great value products, whether
they are looking for the convenience of
incredible food prepared for them, healthy
cooking inspiration or for something
diff erent to celebrate a special occasion.

As one of the UK’s leading retailers,
we sell stylish, high-quality, own brand
Womenswear, Lingerie, Menswear, Kidswear,
Beauty and Home products, serving
customers through our 302 full-line stores
and website, M&S.com. Our Clothing
& Home business accounts for 42% of
our turnover. We are the UK’s largest
clothing retailer by value and we have
market-leading positions in Womenswear,
Lingerie and Menswear.

Read more on Remuneration on p58

Read about our Resources & Relationships on p10-13

OBJECTIVE

KPI

FOOD (52 WEEKS)

CLOTHING & HOME (52 WEEKS)

STRATEGIC OBJECTIVES

Driving
growth

SALES
REVENUE

UK REVENUE

£5.4bn+3.6%

2014/15: £5.2bn

Deﬁ nition UK Food sales including
our owned business and sales to our
UK franchisees.

Performance Our strategy to be
special, new and diff erent continued
to set us apart in a very challenging
and deﬂ ationary market.

UK REVENUE

£3.9bn-2.2%

2014/15: £4.0bn

Deﬁ nition UK Clothing & Home sales
for our owned business.

Performance Trading conditions through
the year remained challenging, with
unseasonal weather resulting in high levels
of promotional activity. Nevertheless,
our performance highlighted a number
of challenges with our products and
execution, and we have announced our
plan to recover and grow sales.

Reaching
customers

SALES GROWTH/
SPACE GROWTH/
ONLINE VISITS

UK LFL SALES GROWTH

+0.2%

UK LFL SALES GROWTH

-2.9%

Deﬁ nition Sales growth from those stores
that have been open for 12 months.

Performance Although we lowered
the sales decline in Clothing & Home
in the last quarter, our sales performance
was unsatisfactory.

Performance We outperformed the
market and grew our market share to 4.3%.

UK FOOD SPACE GROWTH

+3.9%

Deﬁ nition Increase in weighted average
Food selling space.

Performance We opened 25 owned
Simply Food stores, 50 new franchise
locations and seven new full line stores.

Improving
proﬁ tability

GROSS MARGIN/
OPERATING PROFIT

UK GROSS MARGIN

32.8%0bps

UK GROSS MARGIN

55.1%+245bps

Deﬁ nition Gross margin is the percentage
of revenue retained after costs for
producing and transporting goods.

Performance Persistent deﬂ ation from
price investment and an increase in waste
costs put pressure on margin. However,
these were mitigated through beneﬁ ts
realised from volume growth and
ongoing operational effi ciencies.

Performance Strong improvement in
gross margin was driven by improvement
in the buying margin as we continue to
make progress in our sourcing initiatives
and implement a more ﬂ exible and direct
sourcing operation.

21
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

M&S.COM (52 WEEKS)

INTERNATIONAL (52 WEEKS)

TOTAL ONLINE SALES1

£791.5m+23.4%

2014/15: £641.3m

REVENUE

£1.1bn-2.0%

2014/15: £1.1bn

Deﬁ nition Total M&S.com revenue
including web to home and Shop Your
Way transactions.

Deﬁ nition Sales from the International
business including sales for owned
business and sales to franchisees.

Performance We grew sales as we
continued to reﬁ ne and develop the
infrastructure we have put in place over
the past few years. Our sales growth was
ahead of the market and we are now the
second largest online clothing retailer.

Performance Our International business
had a challenging year, although key
markets including Ireland and Greece
returned to like-for-like growth and India
performed well, delivering a double digit
sales increase.

WEEKLY SITE VISITS

7.8m+28.5%

SPACE GROWTH

1.4%

Deﬁ nition Weekly visits to our UK
desktop, tablet, mobile sites and app.

Deﬁ nition Year-on-year increase in
weighted average selling space.

Performance 7.4 million customers
shopped online with us this year, our
highest number yet. Customer satisfaction
scores improved as we constantly reﬁ ned
the customer experience, making the site
quicker and easier to navigate.

Performance International space growth
was lower than previous years, as there
were fewer new store openings due to
the challenging macro-economic
environment. We also closed our
12 stores in the Balkans.

UNDERLYING OPERATING PROFIT

£55.8m-39.6%

Deﬁ nition Underlying operating proﬁ t
provides additional information on
performance adjusting for income
and signiﬁ cant one-off charges.

Performance Proﬁ t was impacted
by a combination of Euro
devaluation, challenging
macro-economic environments
and infrastructure challenges.

LOOKING AHEAD

Food We believe that our core strategy
on Food is clear and that our focus on
quality, innovation and choice is right
and will continue to deliver sustainable,
proﬁ table growth. We expect the roll -
out of our standalone Food stores to
continue to drive sales growth, with
space forecast to grow by c. 5% in the
year ahead. Given ongoing competitive
pressure, we expect gross margin to
remain level, as we continue to re-invest
operational effi ciencies into price, quality
and innovation.

Clothing & Home We are conﬁ dent the
actions we’re taking to address sales
performance will deliver results, however
it will take time for our customers to
notice the improvements and change
their shopping behaviour. Given current
market conditions and our decision to
invest in price and reduce promotional
activity, we expect to see the same sales
trend as last year. We will continue to
realise margin gains from ongoing
sourcing initiatives. However, currency
remains a headwind and we expect this,
combined with our decision to invest
in price, to deliver an increase of
c. 50-100bps.

International We expect the factors
which impacted proﬁ ts this year to persist
through 2016/17. We see further pressure
from the Euro exchange rate, as well
as weak trading conditions in Western
Europe. The macro-economic backdrop
in most of our franchise markets is not
improving, and we will continue to work
with our franchise partners to support
them through these challenging times.
We are still reviewing the shape of our
International business and will report
back in the autumn.

Financial management Tight control
of costs remains a priority and we will
continue to focus on driving effi ciencies.
Operating costs are expected to increase
by c. 3.5%. We will invest in store staffi ng
to give our customers great service.
In addition, we are facing higher costs
as a result of new space and increased
depreciation as well as volume growth
and inﬂ ation. We are continuing with
our focus on cash generation. Capital
expenditure is expected to be lower
at c. £450m.

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1. M&S.com sales for the year ended 2014/15 have been restated to incorporate statutory adjustments and a change in allocation of furniture sales between channels. M&S.com sales for

2015/16 have been prepared on a consistent basis.

22
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

OUR PERFORMANCE

FINANCIAL REVIEW

We are committed to delivering proﬁ t
for our shareholders by putting our
customers at the heart of everything we do.

HELEN WEIR CHIEF FINANCE OFFICER

53 WEEK YEAR

OPERATING PERFORMANCE

This year we are reporting on the 53 weeks to 2nd April 2016.
Proﬁ t metrics are provided on a 53 week basis in the Financial
Statements. To provide a meaningful comparison with last year’s
52 week period, all operating performance commentary in this
section is stated on a 52 week basis, unless otherwise noted.

We continued to manage our costs tightly with UK operating costs
up 1.8%. This increase was driven by growth in Food selling space,
higher depreciation costs and additional employee incentive
costs. These were partially off set by productivity improvements
in a number of areas including store staffi ng and supply chain.

On a 53 week basis, Group underlying proﬁ t before tax was
£689.6m, up 4.3%. Statutory proﬁ t before tax fell by 18.5% to
£488.8m as a result of a number of one off items, details of
which are set out below.

STRATEGIC PRIORITIES

We remained focused on delivering value for our shareholders
through the four key priorities we set out at the start of the year:

> Food sales growth;
> Improve Clothing & Home performance;
> Clothing & Home gross margin improvement;
> Strong cash generation.

We performed well against three of the four priorities, however,
our Clothing & Home sales performance is still not satisfactory.

In a tough grocery market, we continued to grow our Food
business, with revenue up 3.6% at £5.4bn. Our store opening
programme is driving sales growth – we opened 75 standalone
Food stores in the year, as well as seven full line stores, and grew
our market share to 4.3%.

UK Clothing & Home revenue was down 2.2%, at £3.9bn. Whilst
the market is increasingly challenging with low growth and high
levels of promotional activity, we’ve acknowledged that this sales
performance was unsatisfactory. We know that we need to improve
our products and execution and, as set out on pages 6-8, we have
a clear plan in place to address these issues.

Clothing & Home gross margin increased by 245 bps to 55.1%
driven mainly by gains in buying margin as a result of our continued
progress on sourcing more products directly and the beneﬁ ts of
our dollar hedging approach.

We delivered strong free cash ﬂ ow, pre-shareholder returns,
of £539.3m, up 2.9% on last year due to tight control over costs
and capital.

For the second year, we have increased the full year dividend to
18.7p, up 3.9% on last year, in line with proﬁ t growth. We also
announced a special dividend of 4.6p per share (c.£75m) which
will be paid to shareholders at the same time as the ﬁ nal dividend.

M&S Bank proﬁ ts were slightly down 0.4% at £59.9m. Overall
operating performance was strong, but this was off set by the
reduction in interchange fees.

International operating proﬁ t was down 39.6% due to challenging
trading conditions and ongoing Euro currency pressure in our
owned markets and discounts for franchise partners operating
in markets aff ected by diffi cult macro-economic conditions.
Some internal availability challenges also impacted performance.

Overall, Group underlying proﬁ t before tax was £684.1m, up 3.5%.
Group proﬁ t was £483.3m, down 19.5%, as a result of £200.8m
of non-underlying items. £102.4m of these charges related to
our International business. £50.3m related to further M&S Bank
provisions for insurance mis-selling and the balance largely related
to impairment of certain assets and UK stores as part of our UK
store portfolio review. There are further details on page 24 and
in Note 5 on page 97-98.

In February, we announced the outcome of the triennial actuarial
valuation of our UK deﬁ ned beneﬁ t (DB) pension scheme as at
31 March 2015. This resulted in a statutory surplus of £204m,
an improvement on the previous deﬁ cit of £290m (as at
31st March 2012). This improved funding position reﬂ ects the
additional contributions made since the 2012 valuation and
strong investment returns from the Scheme’s assets.

We have proposed changes to our UK DB pension scheme, which
has been closed to new members since 2002, to close it for future
accrual. Under these proposals, we would enrol current deﬁ ned
beneﬁ t members in our deﬁ ned contribution savings plan from
April 2017.

Further details in note 30 on p121

STRONG CAPITAL MANAGEMENT AND DELIVERING
SHAREHOLDER RETURNS

Driving value for shareholders underpins our business strategy
and we remain committed to delivering strong shareholder
returns. We are making good progress against the clear capital
allocation policy set out by the Board last year:

Commitment to a strong balance sheet, including maintaining
an investment grade rating:
> Net debt/EBITDA ratio of 1.6x, comfortably within our ratio

range of 2.0x-1.5x;
> BBB minus rating;

23
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

FIND OUT MORE

See our KPIs on p18-21

See our Strategic Update on p06-08

Read about our operating performance on p15-17

See how performance links to Remuneration on p58

Continuing to invest in the business growth, underpinned
by strong investment disciplines:
> Reduced net capital expenditure excluding acquisitions

of £468.9m, down by £57.7m;

> Ongoing investment in multi-year infrastructure projects

in IT and logistics to make M&S a more ﬂ exible organisation
that can move with speed and agility this year;

> Strong returns from new space openings.

Progressive dividend policy, broadly twice covered by earnings:
> Full year dividend at 18.7p, up 3.9% on last year in line with our

progressive policy.

Returning any surplus cash generated to shareholders on
a regular basis:
> Share buyback programme returned £150m to shareholders

through purchasing 31.6m shares;

> Announced a special dividend amounting to 4.6p per share

(c.£75m) for the ﬁ rst half of the 2016/17 ﬁ nancial year.

SUMMARY OF RESULTS

SUSTAINABLE REPORTING

This year, we have set out to produce an Annual Report that meets
the guiding principles of integrated reporting by demonstrating
the long-term sustainable value we create for our shareholders.
This report therefore includes further clarity to our business
model to better show the eff ective use of the resources and
relationships relevant to our business and the new connected
value spread on page 12. We have provided greater detail on the
interdependencies in our business and how Plan A creates value.
We have also mapped our principal risks against our business
model to demonstrate the connectivity between the two.

We take our responsibility to pay our fair share of tax seriously
and our approach is in keeping with our longstanding values and
aligned to our shareholders’ interests. There is detailed information
on our tax contribution on page 24.

Group revenue1
UK

International1

Underlying operating proﬁ t
UK

International

Underlying proﬁ t before tax
Non-underlying items
Proﬁ t before tax
Underlying basic earnings per share
Basic earnings per share
Dividend per share (declared)2

1. On reported currency basis.
2. Excluding special dividend.

53 weeks ended

52 weeks ended

2 Apr 16
£m

10,555.4
9,470.8
1,084.6
784.9
726.7
58.2
689.6
(200.8)
488.8
35.0p
24.9p
18.7p

% var

+2.4
+2.7
-0.3
+2.9
+8.4
-36.9
+4.3
n/a
-18.5
+5.7
-16.2
+3.9

26 Mar 16
£m

10,391.0
9,324.8
1,066.2
777.6
721.8
55.8
684.1
(200.8)
483.3
34.8p
24.6p
18.7p

28 Mar 15
£m

10,311.4
9,223.1
1,088.3
762.5
670.2
92.3
661.2
(61.2)
600.0
33.1p
29.7p
18.0p

% var

+0.8
+1.1
-2.0
+2.0
+7.7
-39.6
+3.5
n/a
-19.5
+5.1
-17.2
+3.9

GROUP REVENUE

Group revenues were up 0.8% (up 1.1% on a constant currency basis).
UK revenues were up 1.1% in total with a like-for-like decrease of
1.1%. International revenues were down 2.0% (up 1.3% on constant
currency basis).

Food gross margin was level on the year at 32.8%. Investment
in price and an increase in waste costs put pressure on margin.
However, these were mitigated through beneﬁ ts realised from
volume growth and ongoing operational effi ciencies from
streamlining our supply chain processes.

GROSS MARGIN

UK gross margin was up 75bps at 42.1% as a result of the strong
improvement in Clothing & Home.

OPERATING COSTS

Clothing & Home gross margin was up 245bps at 55.1%, driven
by improvement in the buying margin as we continue to make
progress in our sourcing initiatives and implement a more ﬂ exible
and direct sourcing operation, and our dollar hedging approach.
This has unlocked further beneﬁ ts including better buying leverage
and migration. Some of the buying margin gains were eroded by
higher markdown costs due to more stock into sale and higher
promotional costs, resulting from sales underperformance.

Retail staffi ng
Other retail costs
Distribution
Marketing and related
Central costs
Total

52 weeks ended

26 Mar 16
£m

28 Mar 15
£m

974.0
1,088.5
419.0
169.4
615.2
3,266.1

954.5
1,116.4
408.7
167.6
560.2
3,207.4

% var

+2.0
-2.5
+2.5
+1.1
+9.8
+1.8

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24
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

OUR PERFORMANCE
FINANCIAL REVIEW CONTINUED

UK operating costs were up £58.7m (1.8%), with higher depreciation
contributing £32.4m. Retail staffi ng costs were up due to growth in
selling space and the annual pay review, partly off set by effi ciencies
from improved resource allocation. The decrease in other retail
costs reﬂ ects savings from lower interchange fees and the
renegotiation of key utilities and facilities contracts which more
than off set higher costs from new space and depreciation.
Distribution costs were up due to higher volumes in Food and M&S.
com, which were greater than the savings from lower retail volumes
in Clothing & Home. Marketing costs increased slightly due to
additional investment in digital marketing including the launch of
Sparks. Central costs were up largely due to higher IT depreciation
and additional staff incentive costs, partially as a result of the
release of employee beneﬁ t provisions last year.

INTERNATIONAL PERFORMANCE

2015/16

2014/15

Var %

Var % (cc)2

Sales
Owned
Franchise
Operating Proﬁ t
Owned1
Franchise1

1,066.2
741.8
324.4
55.8
(31.5)
87.3

1,088.3
747.0
341.3
92.3
0.0
92.3

-2.0
-0.7
-4.9
-39.6
n/a
-5.3

1.3
4.0
-4.2
-40.0
n/a
-3.3

1. Prior year numbers have been restated for a revised allocation of overheads to more

accurately reﬂ ect business drivers.

2. Constant currency.

International proﬁ t fell by 39.6% to £55.8m primarily due to the
weaker Euro which meant that the cost of goods in our owned
European businesses increased. Competition in these markets
meant that we were not able to pass on these higher costs
in the form of price increases. The macro-economic pressures in
a number of our franchise markets, most notably Turkey, Russia
and the Middle East, have continued, resulting in lower franchise
sales and margins.

UNDERLYING OPERATING PROFIT

Underlying group operating proﬁ t was £777.6m (last year £762.5m).
UK operating proﬁ t was £721.8m, up 7.7%, driven by an
improvement in both Clothing & Home and Food proﬁ tability.

NET FINANCE COSTS

52 weeks ended

26 Mar 16
£m

28 Mar 15
£m

(99.5)
5.8
(93.7)
15.3

(99.8)
5.0
(94.8)
10.5

Interest payable
Interest income
Net interest payable
Pension net ﬁ nance income
Unwinding of discount on
partnership liability
Unwinding of discounts on ﬁ nancial
instruments and provisions
Net ﬁ nance cost

NON-UNDERLYING PROFIT ITEMS

Net M&S Bank charges incurred in relation
to the insurance mis-selling provision
Restructuring credits/(costs)
UK store review
UK one-off impairment costs
International – store closure costs and
impairments
International – impairment of goodwill
International – other impairments
IAS 39 fair value movement of
embedded derivative
Net gain on acquisition of joint venture
holding Bradford warehouse
Proﬁ t/(loss) on disposal and impairment
once commitment to closure
Adjustment to operating proﬁ t and
proﬁ t before tax

52 weeks ended

26 Mar 16
£m

28 Mar 15
£m

(50.3)
9.2
(26.7)
(23.7)

(31.6)
(19.1)
(51.7)

(2.0)

5.4

(13.8)
(4.6)
–
–

(37.2)
–
–

1.3

–

(10.3)

(6.9)

(200.8)

(61.2)

Non-underlying adjustments to proﬁ t were a net charge £200.8m
(last year £61.2m). The Group continues to incur charges in relation
to M&S Bank insurance mis-selling provision (£50.3m).

Following the announcement of a c.£90m multi-year programme
to improve the quality of the UK store estate, a £26.7m charge has
been recognised in relation to UK store closures. A further £23.7m
of asset impairments were incurred as a result of the review of our
Clothing & Home strategy which meant that certain buying and
merchandising systems were no longer required.

In the current year, £102.4m of charges have been recognised in
the International business for store closure costs and impairments
of goodwill and other assets due to underperformance and an
uncertain outlook in a number of markets including Western
Europe and Asia.

A net gain of £5.4m was recognised following the acquisition of
the remaining 50% share of the joint venture holding the Bradford
warehouse, representing a fair value gain of £27.1m on the
revaluation of the existing investment partially off set by a loss of
£21.7m on derecognition of the associated embedded derivative.

Full details are disclosed in note 5 on p97-98.

TAXATION
The full year underlying eff ective tax rate was 17.2% (last year 18.9%).
Statutory eff ective tax rate was 17.3% (last year 19.7%). It was lower
in part owing to a one-off credit due to the restatement of our
deferred tax liability to reﬂ ect a lower future UK Corporation
Tax rate.

(14.7)

(16.1)

TOTAL TAX CONTRIBUTION

(0.8)
(93.5)

(0.9)
(101.3)

Net ﬁ nance costs were down 7.7% due to increased pension
net ﬁ nance income as result of the net retirement beneﬁ t
asset increase.

£857m

Corporation tax 11%
Customs duties 7%
Employer’s NI 8%
Employees’ NI 6%
Other taxes 1%
Business rates 22%
Excise duties 14%
VAT 17%
PAYE 14%

25
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

In 2016 our total cash tax contribution to the UK Exchequer was
£857m (2015: £767m); split between taxes ultimately borne by
the company of £419m (2015: £388m) (i.e. corporation tax, customs
duties, employer’s NIC, business rates and sundry taxes) and taxes
attributable to the Company’s economic activity collected on
behalf of the government of £438m (2015: £379m) (i.e. PAYE,
employees’ NIC, value added tax, excise duties and sundry taxes).

UNDERLYING EARNINGS PER SHARE

Underlying basic earnings per share increased by 5.1% to 34.8p
per share (increased 5.7% to 35.0p on a 53 week basis). The weighted
average number of shares in issue during the period was 1,635.9m
(last year 1,635.6m).

CAPITAL EXPENDITURE

UK store environment
New UK stores
International
Supply chain
IT
Maintenance
Proceeds from property disposals
Total capital expenditure
excluding acquisition
Bradford warehouse
Total capital expenditure

53 weeks
ended
2 Apr 16
£m

52 weeks
ended
28 Mar 15
£m

36.9
106.4
26.4
89.1
161.1
79.6
(30.6)

468.9
56.2
525.1

92.7
63.5
37.5
117.6
156.2
94.5
(35.4)

526.6
–
526.6

Total capital expenditure was level versus last year, however this
includes £56.2m relating to the acquisition of the remaining 50%
of the JV which owned the freehold of our Bradford warehouse.

Excluding this, capital expenditure was down, reﬂ ecting a trend
towards a lower level of capex going forward.

Spend on the UK store environment has reduced due to the
completion of many of our in-store initiatives to create a more
inspiring environment for our customers. Key projects this year
include the new Lingerie and Kidswear schemes and investment
in Food, including our hospitality off er.

As at the year end, we traded from 17.0m square feet of selling
space, an increase of c.1.6% (on a weighted average basis) as we
opened 82 new stores and closed 20 stores. Within this, Food space
grew by 3.9%, with 25 new owned Simply Food stores, 50 franchise
and seven full line stores. Of the 20 closures, four were relocations
to better sites as we improved the quality of the store estate for our
customers. Clothing & Home space increased by 0.4% as the full line
store openings more than off set the closures. International space
increased by c. 1.4%, a reduction on previous years.

We continued to invest in supply chain and technology. In April
2016, we completed another milestone in the development of the
strategic warehouse network with the opening of our repurposed
Bradford warehouse as an automated store NDC for our Clothing
& Home business. Completion of the strategic network remains on
track and is expected to be fully implemented by the end of 2017/18.

In IT, we continued to make progress on our GM4 Clothing &
Home buying and merchandising systems with three of the four
systems now operational within the business. As highlighted above,
following a review of the Clothing & Home business, we will not

implement the ﬁ nal component, Assortment Planning. The
proceeds from property disposals mainly relate to the deferred
consideration from the sale of the White City warehouse which
is being received over three years until 2016/17.

The Group purchased the remaining 50% share of the Lima
(Bradford) S.à r.l. joint venture for cash consideration of £56.2m.
The company owned the automated distribution centre in Bradford
which was previously leased to the Group. As a result, the Bradford
automated distribution centre is now completely owned and
controlled by the Group.

CASH FLOW AND NET DEBT

Underlying Proﬁ t Before Tax
Finance costs
Finance income
Depreciation and amortisation
Underlying EBITDA
Non cash pension and share charges
Non underlying items
Working capital
Pension funding
Capex and disposals
Acquisition of subsidiary
Interest and taxation
Share transactions
Free cash ﬂ ow pre shareholder returns
Dividends paid
Share buyback
Free cash ﬂ ow
Opening net debt
Exchange and other non-cash
movements
Closing net debt

53 weeks
ended
2 Apr 16
£m

689.6
116.4
(21.1)
576.8
1,361.7
118.0
(63.2)
13.2
(118.4)
(519.5)
(56.2)
(206.0)
9.7
539.3
(301.7)
(150.7)
86.9
(2,223.2)

52 weeks
ended
28 Mar 15
£m

661.2
116.8
(15.5)
550.1
1,312.6
84.3
(25.1)
120.3
(143.0)
(664.4)
–
(177.1)
16.6
524.2
(280.7)
–
243.5
(2,463.6)

(2.0)
(2,138.3)

(3.1)
(2,223.2)

The business delivered strong free cash ﬂ ow pre shareholder
returns of £539.3m. After the completion of the share buyback
programme and payment of dividends to shareholders, the overall
net debt was down by £84.9m. The improved free cash ﬂ ow reﬂ ects
stronger business performance, with underlying EBITDA of
£1,361.7m, an increase of £49.1m (3.7%) on last year. Working capital
was broadly ﬂ at in the year. These movements are partially off set
by pension funding of £118.4m and capital expenditure cash
payments of £519.5m which include the payment of prior year
capital accruals.

The Strategic Report, including pages 26 to 29, was approved by
a duly authorised Committee of the Board of the Directors on
24 May 2016, and signed on its behalf by

Helen Weir Chief Finance Offi cer
24 May 2016

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26
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

OUR PERFORMANCE

OUR PEOPLE

Our people bring our values to life.
Their talent, commitment to our customers and
pride in M&S are key to our long-term growth.

LIVING OUR VALUES

DIVERSITY AND WELLBEING

PLAN A

We have built on last year’s Fit For The
Future programme with a series of training
initiatives designed to help employees
live our values of Inspiration, Innovation,
Integrity and In Touch. Last summer, our
top 160 managers took part in a leadership
development programme called Fit to
Lead. The initiative looked at how we
can be more collaborative, agile and
entrepreneurial as an organisation. We also
ran events for 750 line managers and 3,500
store managers in which they examined
how our values can drive high performance.
The feedback from all the events was
extremely positive. We received 50,000
comments speciﬁ c to living the values in
our annual Your Say survey – they really
resonate with our employees.

ENGAGED AND ENTREPRENEURIAL

Our Your Say survey showed that employee
engagement levels remain high at 78%.
We want to develop and celebrate the talent
within M&S, and it’s only right that good
ideas are given a platform. Give Me Five,
our initiative where employees pitch ideas
to senior managers, has given employees
a sense of ownership and a number of the
pitched ideas have been implemented.
The idea of Give Me Five itself came from
some of our store and offi ce colleagues
keen to support our Fit for the Future drive
to bring a more entrepreneurial spirit to M&S.

EMPLOYEE DIVERSITY AS AT 2 APRIL 2016

8 %

72%

80,041

8 %

42%

168

2 %

38%

Total employees
Female 57,841
Male 22,200

Total senior managers

Female 70
Male 98

Total Board*
Female 5
Male 8

* Includes Marc Bolland and Martha Lane Fox who retired
from the Board on 2 April 2016. Refer to p33 for current
Board diversity information.

People are increasingly looking to work for
organisations that give them the freedom
to be themselves. We have developed an
approach to Be Yourself in our induction
process, encouraging employees to
recognise people’s diff erences while
not being afraid to express their own.
Our employees’ wellbeing is also crucial
to us and we continue to invest in
programmes such as Dare to Care, an
internal campaign focused around raising
awareness of mental health.

TRANSFORMING OUR BUSINESS

As we continue to transform our business,
we must ensure that the changes we make
are implemented and communicated to
employees eff ectively. The robust processes
we have in place around succession
planning, change management and our
dedicated Employee Communications team
help us mitigate such risks from a people
perspective. Our Business Involvement
Group (BIG), M&S’s network of elected
employee representatives, enables us to
inform, involve and consult with colleagues
across our business on our future plans.
BIG gives colleagues the chance to voice
their opinions and ideas, get answers and
have their views represented.

This year we extended our Make Your Mark
youth employment scheme to our head
offi ce and Castle Donington distribution
centre, increasing the options available to
young people. Across the business, 1,400
people took their ﬁ rst steps into work thanks
to the programme. Meanwhile, our Marks
& Start scheme for people who face barriers
getting into work helped an additional
1,400 people through work placements
in our stores and distribution centres.
We introduced Spark Something Good to
encourage our people to make a diff erence
in their local communities. The scheme
allowed employees to coordinate their
annual volunteer day in a collaborative
way. By taking part in a series of community
projects in individual cities on the same
day, employees mobilised as teams for
good causes. In London, we transformed
24 community projects over 24 hours. The
scheme will be rolled out to 24 cities across
the UK and Ireland over two years – we have
already completed ﬁ ve cities; London,
Manchester, Swansea, Edinburgh and Dublin.

1. Our Inspiring Women
Network events have seen
a raft of high-proﬁ le visitors
deliver motivating speeches
to our employees. Guests this
year have included Ruby Wax
and Baroness Karren Brady.

2. All our people can inﬂ uence
change through BIG, which has
3,500 representatives from every
store and business area who
gather feedback and represent
colleagues on the topics that are
most important to them. BIG’s
agenda this year included the
national living wage and Sparks.

3. Our awards this year include
The Times Top 50 Employers for
Women, Training Journal’s Best
Operational Programme for
our store induction programme
and, for the second year running,
the Prince’s Trust Young Achiever
Award, which went to Stacey Fox
from our Swansea store.

27
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

OUR PERFORMANCE

RISK MANAGEMENT

As with any business, we face risks and uncertainties
on a daily basis. Eff ective risk management
places us in a better position to be able to achieve
our strategic objectives.

APPROACH TO RISK MANAGEMENT

KEY AREAS OF FOCUS

The Board is accountable for carrying
out a robust assessment of the principal
risks facing the Company, including those
threatening its business model, future
performance, solvency and liquidity.
On behalf of the Board, the Audit
Committee reviews the eff ectiveness
of the Group risk management processes.

Each business area is responsible for
formally identifying and assessing their
risks half-yearly, measuring them against
a deﬁ ned set of criteria, and considering
likelihood of occurrence and potential
impact to the Group. The Group Risk
function facilitates a similar exercise with
Executive Board members, combining
information to provide a consolidated
view. The top risks (based on likelihood
and impact as illustrated below) form our
Group Risk Proﬁ le, which is reported to the
Executive Board for review and challenge,
ahead of ﬁ nal review and approval by the
Group Board. These principal risks are then
subject to Board discussion during the
course of the year, as appropriate.

To drive continuous improvement across
the business, the Executive Board monitors
the ongoing status of action plans against
key risks quarterly.

This year the Group Board has placed
signiﬁ cant focus on deﬁ ning our risk
appetite. At the highest level, this is an
expression of the types and amount of
risk we are willing to take or accept to
achieve our strategic and operational
objectives. It is a key consideration in
decision-making across the Group and
helps us deﬁ ne the mitigating activities
required to manage our risks.

Following on from last year’s progress,
we have taken our risk appetite work
a step further and the Board has agreed
a set of Group-level appetite statements.
The purpose of these is to articulate the
Board’s desired risk-taking approach,
and to support the business in its
management of a number of principal risks.
The current statements summarise normal
risk parameters within which the Group
already operates; as our business evolves
we will continue to reﬁ ne our risk appetite
statements and approach. Further detail
can be found on page 48.

During 2015/16, the directors also assessed
the long-term viability of the Company
in the context of its principal risks. The
inclusion of a Viability Statement in Annual
Reports from 2016 is a new requirement

under the UK Corporate Governance Code.
The statement is designed to strengthen
stewardship and to encourage directors
to focus on the longer term. Further detail
on this can be found on page 47.

PRINCIPAL RISKS AND UNCERTAINTIES

Overleaf are details of our principal risks
and uncertainties and the key mitigating
activities in place to address them. It is
recognised that the Group is exposed to
risks wider than those listed. We disclose
those we believe are likely to have the
greatest impact on our business at this
moment in time and which have been
the subject of debate at recent Board
or Audit Committee meetings.

To achieve a holistic view of the risks
facing our business, we consider those
that are external to our business, core
to our day-to-day operation, related to
business change activity, and those that
could emerge in the future.

The diagram below maps our principal risks
to our business model. This mapping helps
us assess and manage risk, and provides a
greater understanding of our principal risks
in the context of our business operations,
including their broader inﬂ uence on
viability, as discussed above.

RISK LIKELIHOOD AND IMPACT

RISK AND OUR BUSINESS MODEL

N
A
T
R
E
C
T
S
O
M
L
A

Y
L
E
K
L

E
L
B
S
S
O
P

Y
L
E
K
L
N
U

Identiﬁ cation Risks
highlighted and
documented in a
centrally managed
risk register

Assessment
Risks assessed in
terms of likelihood
of occurrence and
potential impact
on the Group

D
O
O
H
I
L
E
K
I
L

Mitigation
Required actions
are agreed and
assigned, with
target deadlines
and quarterly
status updates

G
G

1
CLOTHING & HOME
TRANSFORMATION

2
CHANGING
CONSUMER
BEHAVIOURS

S O C I O P OLITICAL UNREST

F
O
R
E

G
N

3
BUSINESS
TRANSFORMATION

4
CLOTHING &
HOME SUPPLY
CHAIN AND
LOGISTICS
NETWORK

N
G

5
IT
INTEGRATION

N
G
I
S
E

P & D
D E V ELO

6
FOOD
COMPETITION

XIT
BRE

G A G E

T E N & RESPOND
PLAN A

L I S

INSPIRATION
Aim to excite
and inspire our
customers

IN TOUCH
Listen
actively
and act
thoughtfully

CORE
PURPOSE
MAKING
EVERY
MOMENT
SPECIAL

INNOVATION
Aim to
improve
things for
the better

INTEGRITY
Strive to do
the right thing

PLAN A
SOURCE & B U Y

8
CLOTHING &
HOME ETHICAL
SOURCING

7
FOOD SAFETY
AND INTEGRITY

N
& E

E
V
R
E
S

11
M&S.COM
BUSINESS
RESILIENCE

10
INTERNATIONAL

9
CYBER/
INFORMATION
SECURITY

MINOR

MODERATE

MAJOR

CRITICAL

IMPACT

GROSS RISK LEVEL BEFORE MITIGATION

NET RISK LEVEL AFTER MITIGATION

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28
MARKS AND SPENCER GROUP PLC
STRATEGIC REPORT

OUR PERFORMANCE
RISK MANAGEMENT

EXTERNAL RISKS

In the table below we disclose 11
principal risks that may impact
our business and are strategic or
operational in nature. In addition to
these a number of inter-dependent
external risks are also the subject of
discussion at Group Board and Audit
Committee meetings, as appropriate.

Whilst these risks are beyond our direct
control, we recognise the importance
of operating a business model that
has the potential to ﬂ ex and adapt to
a changing external environment.
The ﬁ rst external risk is Sociopolitical
Unrest, where ongoing geopolitical
uncertainty, social unrest or the threat

of terrorism have the potential to
impact consumer conﬁ dence and
retail spending on a global scale.
Deterioration in Foreign Exchange &
Global Economy would not only aff ect
consumer conﬁ dence in terms of the
global economy, but the performance
of our International business is also

signiﬁ cantly inﬂ uenced by ﬂ uctuations
in foreign exchange rates. As part of
these broader risk factors we have
speciﬁ cally considered the implications
of Brexit in terms of the signiﬁ cant
economic uncertainty that exists in
advance of the upcoming referendum
on Britain’s EU membership.

PRINCIPAL RISKS AND UNCERTAINTIES

Key to change in risk level

Higher

Level

Lower Nr New risk

RISK

DESCRIPTION

CHANGE IN 2015/16

MITIGATING ACTIVITIES

1 CLOTHING & HOME

TRANSFORMATION

Our future
performance is
impacted by a lack
of improvement in
product relevance,
execution or brand
momentum

As we reassert our Clothing
& Home quality and style
credentials and work to improve
availability, it is important
that we understand and
address our customers’ needs
in order to strengthen brand
recognition in an increasingly
competitive market.

Whilst signiﬁ cant focus has
been placed on improving
product style and quality,
the beneﬁ t has yet to be seen
in our sales performance.
Transforming our Clothing
& Home business to improve
performance remains a key
priority for the business.

> Workstreams in place addressing product, price

and process.

> Ongoing engagement with customers through data
gathered by our Customer Insight Unit and focus
groups, regularly shared with key areas of the business.
> Ongoing dashboard monitoring of brand momentum.
> Continued focus on product quality and style,

including adherence to our Clothing Quality Charter.

CHANGING
CONSUMER
BEHAVIOURS

Our business
performance will be
impacted if we fail
to keep pace with
changing consumer
behaviours

Consumer behaviours
continue to evolve at pace;
the proliferation of diff erent
purchasing channels has been
unprecedented in recent years.
We need to anticipate changes
in the way our customers shop,
including advances in digital
technology. To leverage
performance and keep pace
with our competitors, we must
proactively manage our
property portfolio and operate
a ﬂ exible business model.

Changing consumer
behaviours is a newly added
risk in recognition of the need
to remain ﬂ exible in a highly
competitive market. If we fail
to meet the expectations
of our customers in terms
of digital advances or the
accessibility of our store
network this could have a
signiﬁ cant impact on our
future performance.

BUSINESS
TRANSFORMATION

As we strive to
transform our
business, we must
ensure that the
changes we make
are implemented
eff ectively

Our business is in a period
of signiﬁ cant transformation,
driven by a variety of internal
and external factors.
Eff ective management and
implementation of associated
people and process changes
will be critical, whilst ensuring
that our day-to-day operations
are not adversely impacted.

The addition of Business
transformation recognises
the importance of ensuring
that our business remains
organisationally and
operationally effi cient in an
increasingly competitive retail
market, as we continue to
address ongoing performance
challenges and enter a new
chapter in our history under
the leadership of a new CEO.

> M&S Venture Lab in place to keep us at the forefront

of technological developments.

> Customer Insight Unit and focus groups monitor

changes in consumer behaviours on an ongoing basis.

> Channel strategy regularly reviewed at Board level.
> Financial modelling of projected channel

performance to facilitate proactive management
of the store portfolio.

> Business transformation regularly discussed

by the Group Board.

> Employee Communications team engaged to
manage associated employee messaging.

> Robust programme management practices in place.
> Consultation with Business Involvement Group on

changes related to our peo.

4 CLOTHING & HOME

SUPPLY CHAIN
AND LOGISTICS
NETWORK

We fail to evolve
our supply chainand
logistics network
to maximise
availability for our
customers and
speed up delivery
times

The growth of our business
and achievement of strategic
objectives is highly contingent
on the successful execution
of our Clothing & Home supply
chain and logistics network
strategy, the most recent stage
of which was the launch of
our redeveloped Bradford
distribution centre.

2015/16 saw signiﬁ cant
progress towards achieving
our Clothing & Home supply
chain and logistics strategy.
Our Castle Donington
distribution centre stabilised
and we continued to progress
with the redevelopment of
our Bradford distribution centre.
We also redeﬁ ned Supply Chain
& Logistics accountabilities.

> Ongoing simpliﬁ cation and stabilisation of Castle

Donington distribution centre.

> Phased approach to distribution centre transformation.
> Supply Chain Leadership Group created, supported by
changes to Supply Chain & Logistics accountabilities.

> Robust programme governance in place, including
interdependencies with other Group initiatives.

> Ongoing review of progress against agreed

operational and ﬁ nancial objectives.

IT INTEGRATION

Business processes
are not adequately
supported as a
result of poorly
integrated IT
systems

Our business operates using
a large number of complex
and interdependent systems.
The eff ective integration of
these is reliant on us having
access to and leveraging the
right skillset, coupled with a
culture of operational precision.

IT integration is a newly added
risk. Following a period of
investment in technology,
there is scope to improve the
integration between systems
to leverage associated beneﬁ ts,
drive our business forward and
maximise operational effi ciency.

> Proactive simpliﬁ cation of IT infrastructure and

application landscape through:
– Clearly deﬁ ned technology roadmaps for all

business areas; and

– Decommissioning of legacy systems.

> Clear decision-making process for system changes,
including established IT Change Approval Board.

29
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

FIND OUT MORE

See our Audit Committee Report on p42-46

Read Risk in action on p47-48

RISK

DESCRIPTION

CHANGE IN 2015/16

MITIGATING ACTIVITIES

6 FOOD

COMPETITION

Loss of market
share, due to
market price
deﬂ ation or
changes in the
competitive
landscape

7 FOOD SAFETY

AND INTEGRITY

A food safety or
integrity related
incident occurs
or is not eff ectively
managed

The food market continues to
evolve in response to changing
customer behaviours and the
increasing inﬂ uence of the
continental discounters.
The ongoing polarisation
between value and premium
means it is important that we
continue to provide a point of
diff erence through newness,
product quality and innovation,
as well as convenience.

As a leading retailer of quality
fresh food, it is of paramount
importance that we eff ectively
manage safety and integrity,
especially as we grow our global
food business and given the
risk of fraudulent behaviour in
the supply chain.

The food market has remained
challenging in 2015/16. In
response to this we continue
to monitor our price positioning
and to leverage our strengths.

> Signiﬁ cant focus on product newness and innovation

to retain point of diff erence and drive customer loyalty.

> Continued focus on product availability for

our customers.

> Regular review of price positioning.
> Simply Food expansion to provide convenience

for our customers.

> Review of key lines to improve comparability

with competitors.

The external pressures facing
the food industry continued
to evolve in 2015/16. Fraudulent
behaviour in the supply chain
remains a signiﬁ cant risk,
whilst regulatory requirements
are becoming increasingly
stringent. However, in response,
our strong control environment
has kept pace.

> Dedicated team responsible for ensuring that
all products are safe for consumption through
rigorous controls and processes.
> Continuous focus on product quality.
> Proactive horizon scanning, including focus

on fraud and adulteration.

> Robust store, supplier and depot auditing

programme in place.

> Crisis management plan in place.

CLOTHING &
HOME ETHICAL
SOURCING

Our ethical
standards continue
to be of high
importance as
we make changes
to our sourcing
strategy

The promotional nature of
the retail environment,
coupled with inherent cost base
pressures, make achievement
of margin targets a key objective
for the business. Against this
background, it is critically
important that we maintain our
high ethical standards and the
strong control environment
under which we operate.

The Clothing & Home margin
risk included in last year’s
report has been replaced by
this Clothing & Home ethical
sourcing risk. This recognises
the importance of our strong
ethical behaviours and the
role they play in achieving
our business objectives as
we continue to improve our
margin performance.

> Clearly deﬁ ned sourcing policies and procedures.
> Mature supplier ethical auditing programme in place,

involving independent third party auditors.
> Regional compliance teams providing ongoing

in-country support.

> Factory listening groups in place.
> Member of the Ethical Trading Initiative.

9 CYBER/

INFORMATION
SECURITY

We experience
a major breach
in cyber, system
or information
security

10 INTERNATIONAL

The performance
of our International
business and
fulﬁ lment of our
strategy is aff ected
by a lack of brand
momentum or
substandard
infrastructure

11 M&S.COM

BUSINESS
RESILIENCE

A major failure
of our M&S.com
platform or at our
Castle Donington
distribution centre
impacts our ability
to trade online

The business is subject
to external threats from
hackers or viruses, or
sensitive data is accessed
without authorisation.

2015/16 saw a number of major
organisations subjected to
cyber-attacks. The external
threat proﬁ le is ever changing,
and the regulatory environment
supporting data protection is
also becoming more stringent.

> Security controls in place including policies,

procedures and security technologies.

> Ongoing monitoring of developments in cyber
security threats, engaging with third party
specialists where appropriate.

> Control of sensitive data through limited and
monitored access and the roll-out of systems
possessing enhanced security.

> Established team dedicated to managing security

requirements for M&S.com.

To drive proﬁ table growth,
we need to ensure that our
infrastructure and underlying
processes and systems are
suffi ciently robust, and that
our brand resonates across
international markets.

International performance
has remained challenging in
2015/16. We are working to
improve all aspects of our
International business
including our business model,
supply chain, systems and the
skillset of our people.

> Geographic spread mitigates against localised

geo-political or economic risks.

> Local market knowledge provided by franchise

and joint venture partnerships.

> Performance monitoring by region, country and

store, including focus on like-for-like performance
and action planning for poor performing stores.
> International representation in key Group initiatives.

As our online traffi c grows and
our network infrastructure and
operating model evolve, it is
increasingly important to ensure
that the M&S.com business and
key dependencies are resilient.

Whilst this risk continues to
be important especially as
online traffi c grows, the
resilience and performance
of our M&S.com platform and
Castle Donington distribution
centre have improved
signiﬁ cantly in 2015/16.

> Dual site M&S.com command centre operates 24/7
to monitor website availability and performance.
> Social media monitored to observe and respond to

trends in customer experience.

> Business continuity plans, incident reporting and
management procedures are well established
and tested, with regular monitoring including
quarterly Business Continuity Committee meetings.

> Proven resilience plans in place for the

M&S.com platform.

Notes: The Group Risk Proﬁ le will evolve as mitigating activities reduce net risk over time, or as new risks emerge. Three new risks have been added to the Group Risk Proﬁ le since the
prior year (IT integration, Changing consumer behaviours and Business transformation); the remaining risks have essentially remained the same, with the exception of one risk where
the emphasis has changed from Clothing & Home margin to Clothing & Home ethical sourcing. Four risks have been removed from the Group Risk Proﬁ le since the prior year (Our people,
staff retention, IT change and Programme and workstream management).
The risks listed do not comprise all those associated with Marks & Spencer and the numerical referencing does not denote an order of priority. Additional risks and uncertainties
not presently known to management, or currently deemed to be less material, may also have an adverse eff ect on the business. These less material risks are kept in view in case their
likelihood or impact should show signs of increasing. Further information on the ﬁ nancial risks we face and how they are managed is provided on pages 113-116.

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30
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT

GOVERNANCE

CHAIRMAN’S
GOVERNANCE OVERVIEW

Our approach to succession has enhanced our ability
Ou
to
to replace and develop responsibilities quickly and
se
seamlessly, and improved our ability to react to both
planned and unplanned changes.

ROBERT SWANNELL CHAIRMAN

During the year the Board has placed much
focus on operational delivery, succession
planning and risk management. The
following pages provide insight into these
activities alongside the Board’s discussions
and governance processes.

An open and balanced review of our
business performance has been covered
earlier on pages 02 to 29. As highlighted,
although we made headway against a
number of the priorities we set ourselves
at the start of the year, our performance in
Clothing & Home and International remains
unsatisfactory, despite the signiﬁ cant
eff ort from the teams in these areas of
the business. The last two years have seen
a signiﬁ cant improvement in our clothing
gross margin, delivered through improved
design capabilities, smarter buying, a more
ﬂ exible supply base and growth in our
international reach. However, we recognise
that we have more work to do to deliver
sustained performance in Clothing & Home
and International. These will both be key
areas of focus for the year ahead.

A key area of Board discussion and
challenge this year centered on improving
the performance and risk management
of our website and the Castle Donington
distribution centre. The Board was pleased
with the signiﬁ cant improvement in the
operations of these over the critical
Christmas period. Better process
management and controls, and extensive
testing by the team leading up to
the intensive peak trading period, was
a critical factor in this success. This focus
on delivering an improved customer
experience has underpinned a strong
performance from M&S.com and delivered
growth in market share.

Our balance sheet remains strong and
we are delivering well against our free
cashﬂ ow targets, even after returning
£451.7m to shareholders, via dividend
payments and the share buyback.

During the year the Board also discussed its
strategic priorities, operational delivery and

the associated key business risks and their
management. We have sought to provide
insight into the scope of the Board’s
activities, discussions and resulting actions
on pages 36 and 37 of this report.

Much thought has been given to our risk
appetite resulting in the agreement of
a formal set of Group level statements,
as discussed on page 48. We have also
spent time considering management of our
cyber and business continuity risks, these
will remain key items on the Board agenda.

Nominations Committee to work carefully
and systematically on his succession.

Leadership, culture and good governance
are essential considerations for our Board
as it seeks to build a business that can
deliver sustainable performance and
an organisation ﬁ t for the longer term.
Steve has outlined on page 06 to 08 the
importance of customer focus, clarity,
simplicity, and better ways of working
to deliver on improved operational
performance.

SUCCESSION PLANNING AND CULTURE
This year has been particularly intensive
for both the Board and the Nomination
Committee relating to succession
planning and culture, assessing the
executive, non-executive and senior
succession pipeline, and identifying what
skills are needed to support our strategy
and business for the long-term.

Board and senior management succession
has been a regular feature of our Board
and Committee discussion over the last
ﬁ ve years, with development and continued
assessment forming a key agenda item.
So, when Marc Bolland raised his potential
retirement with the Board, the Nomination
Committee was well prepared to ensure
a careful and systematic transition. This
process along with further detail on
the activities of the Nomination and
Remuneration Committees are provided
on pages 40 to 41 and 50 to 71 respectively.

In reaching its conclusion to appoint
Steve Rowe as Chief Executive (CEO),
the Committee followed a rigorous
assessment, development and selection
process, including external benchmarking.

The Board was unanimous in supporting
Steve’s appointment in the light of his
considerable knowledge of the business
and its people, his appetite to continue
the process of change, his perceptive and
eff ective problem solving, his values and his
observed leadership. The Board is grateful
to Marc for his planning, enabling the

As the business looks at how it can work
more eff ectively, the Board recognises
the role it can play in demonstrating
leadership and tone from the top.

Following our Board evaluation last year,
we set out to articulate our Board culture
with an internal framework to identify how
we wanted to work as a Board and how
we wished to operate and behave as
a team. This has helped us to reﬂ ect not
just on what we do but the way we do it.
Furthermore, it aligns the Board with M&S’s
internal performance management to
ensure that values and behaviours are
integral to our corporate DNA.

THIS REPORT’S KEY FEATURES
Over the next few pages we look at our
Board members, the role of the Board, its
performance and its oversight. We provide
an overview of the process undertaken to
ensure CEO succession and provide insight
into diff ering induction programmes.

Following feedback on our 2015 report,
we again provide detail on the activities
and discussions undertaken during the year
by sharing some of the actions arising from
those discussions and the progress against
them. Given the timing of the change in
leadership, certain discussions pertaining
to future strategy and Board evaluation
were undertaken subsequent to year-end.
In the interest of transparency, to align with
previous years and provide clarity to the
reader, these have also been included in
the table on pages 36 and 37.

31
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

GOVERNANCE – KEY FEATURES

Governance at M&S is an important element
of our Board environment. It feeds into how we
do business, how we serve our customers and
our other stakeholders. It therefore needs to be
authentic and meaningful.

Where information would previously have been
located within the Directors’ Report, and has
instead been incorporated into the Strategic
Report, a list of page references is available
within the ‘Other Disclosures’ section on page 73.

In line with previous years, we have used the
key themes of the UK Corporate Governance
Code as the framework for articulating the
Board’s activities during the year:

> Leadership and Eff ectiveness are on pages

32 to 41

> Accountability on pages 27 to 29 within the
Strategic Report and pages 42 to 48 in the
Directors’ Report

> Stakeholder engagement and relations with

shareholders on page 49

> Remuneration on pages 50 to 71

Additionally, information on the Governance
of our Pension Scheme is provided on page 72.

The required governance and regulatory
assurances are provided throughout this
Directors’ Report in a way that reﬂ ects their
relevance to the business. As in previous years,
we have sought to provide insight as to how
governance supports and protects the M&S
business and our stakeholders in a practical way.

Every year we review and benchmark our
governance framework against best practice.
The framework sets out the roles, accountabilities
and expectations for our directors and our
structures. This format has been adopted widely
across the business and can be viewed at
marksandspencer.com/thecompany.

GOVERNANCE PROFILE
Independence Over half of our Board is made up
of independent non-executive directors, in line
with the UK Corporate Governance Code.

Senior Independent Director Our Senior
Independent Director is Vindi Banga.

Accountability and election We have clear
separation of duties between Chairman and
CEO roles, and require all the directors to stand
for re-election annually.

Evaluation An internally facilitated performance
evaluation of the Board and its Committees
was undertaken during the year. An external
evaluation will be undertaken next year.

Attendance The directors have all
attended an acceptable level of Board
and Committee meetings.

Compliance The composition of all Board
Committees complies with the application
recommendations of the Code.

Experience Throughout 2015/16, the Audit
Committee chairman met the speciﬁ c
requirements with regard to recent and
relevant ﬁ nancial experience.

Tenure We changed our auditor in 2014/15,
following a thorough tender process.

Non-audit policy We have a policy for the award
of non-audit work performed by our auditor,
which is disclosed on our website, and we have
disclosed the limited non-audit work undertaken.

Auditor appointment We disclose our external
auditor appointment policy.

Internal Audit Details on the Internal Audit
function are provided within this report.

Performance-related pay A signiﬁ cant part
of our performance-related pay is delivered
through shares.

Reward Our reward framework is simple and
transparent and is designed to support and
drive our business strategy.

We also provide insight relating to director:

> Independence Maintaining the right

balance of independence on the Board;

> Eff ectiveness The review this year was
internally facilitated. We update on the
output and the action plan for the year
ahead on page 39; and

> Ongoing development Business

training, engagement and mentoring.

UK CORPORATE GOVERNANCE CODE

The UK Corporate Governance Code 2014
(the ‘Code’) is the standard against which we
were required to measure ourselves in 2015/16.

A copy of the Code is available from the
Financial Reporting Council’s website.

We are pleased to conﬁ rm that we complied
with all of the provisions set out in the Code
for the period under review.

A summary of our governance proﬁ le, outlining
our compliance with key areas of the Code,
has been set out above.

To keep this report interesting and engaging,
we continue to focus on the key insights from
the business; however, further detail on how
we comply with the Code can be found in our
Corporate Governance Statement, available at
marksandspencer.com/thecompany.

BOARD OVERSIGHT AND MONITORING
We have highlighted our risks and risk
management process on pages 27 to 29.
While the Board is responsible for these, the
Audit Committee has played a key role in
ensuring that the appropriate governance
and challenge around risk and assurance
is embedded throughout the business.
It has been closely monitoring the
management of our cyber risk, health and
safety and business continuity of our UK
and international operations, and has
undertaken a thorough review of the

notable non-underlying items impacting
this year’s performance. Information on the
activities of the Committee can be found
on pages 42 to 46 of this report.

In supporting talent and future leadership
for the business, the Remuneration
Committee has reviewed our remuneration
framework, to ensure it remains relevant to
the business, and continued to develop and
test the setting and disclosure of objectives
and targets. The Committee’s activities,
considerations and a summary of our
Remuneration Policy, are on pages 50 to 71.

APPOINTMENTS AND BOARD CHANGES
We made a number of changes to the
Board this year. On 1 April 2015, we
welcomed Helen Weir as Chief Finance
Offi cer. She has brought considerable
ﬁ nancial challenge to our processes, data
and key performance metrics and has built
a strong team to support the business.

In April 2015 Richard Solomons joined the
Board as Non-Executive Director. As the
CEO of Intercontinental Hotels Group,
he brings considerable knowledge of
operating an international, multi-channel
consumer business.

In July 2015, John Dixon, Executive Director
of GM, resigned from the Board. Given his
success in running Food for three years,
Steve Rowe was appointed to the role.

In December 2015 we were delighted to
appoint Andrew Fisher as a non-executive
director; he brings considerable experience
of digital services, consumer insight and
international context to the M&S Board.
His appointment followed a review of
the Board experience and skills. The
Nomination Committee set a clear search
speciﬁ cation which focused on digital and
consumer experience. This appointment
was part of our planning for the retirement

of Martha Lane Fox, who stepped down
as a non-executive director on 2 April,
after nearly nine years on the Board.

Andrew, Helen and Richard all undertook
comprehensive inductions into the
business. Detail on Andrew’s induction
programme is provided on page 38,
an overview of Helen’s and Richard’s
was provided in last year’s report.

These appointments bring new energy,
challenge and oversight to the Board.
Their additional skills and experience build
on our existing talent and will stand us in
good stead for the year ahead.

We continue to drive the agenda of
diversity in its broadest sense across the
business, and are proud to have built a
workforce that is diverse in terms of gender,
experience, ethnicity, age and levels of
physical ability. Further insight is provided
on page 41 and in our Plan A Report.

We hope this report demonstrates how
our governance helps us test whether
we are doing the right things in the right
way, with the right safeguards, checks
and balances, and whether the right
considerations underpin the decisions we
take. Furthermore, we report with honesty,
integrity and transparency to ensure our
stakeholders receive a fair and balanced
view of the business in which they invest.

We approach the year ahead with
conﬁ dence in our leadership and business
and as outlined on pages 06 to 08, our
focus will be on performance and delivery
of our strategic priorities.

ROBERT SWANNELL CHAIRMAN

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32
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

LEADERSHIP & EFFECTIVENESS

OUR BOARD

CHAIRMAN

EXECUTIVE DIRECTORS

N R

Robert Swannell
Chairman

Steve Rowe
Chief Executive

Appointed: Chairman in January
2011, Non-Executive Director in
October 2010

Appointed: Executive Director,
General Merchandise in July 2015,
Chief Executive from 2 April 2016

Skills, competence and experience:
Robert is a Chartered Accountant
and a Barrister. He has extensive
government and regulatory
experience and possesses a wealth
of knowledge of many diff erent
business areas, banking and the
City, acquired over a 33-year career
in investment banking. He has
signiﬁ cant experience as a director
and chairman across various sectors,
and his leadership in the area of
governance promotes robust
debate and drives a culture of
openness in the boardroom.

Other roles: Chairman of UK
Government Investments, Director
of the Investor Forum, Trustee of
Kew Foundation and Teach First,
Advisory Board Member of Sutton
Trust and Spencer Stuart.

Skills, competence and experience:
Steve joined M&S in 1989 and
progressed through a variety of
roles within store management
before moving to Head Offi ce in
1993. He has worked in senior roles
across various areas of the business,
including Director of Home, Director
of Retail, and Director of Retail and
E-commerce. He was appointed to
the Board as Executive Director, Food
in 2012, leading the Food division as
it continued its record of outstanding
innovation and strong growth.
Steve moved to the role of Executive
Director, General Merchandise in
July 2015, with a mandate to improve
overall performance and build on the
Clothing & Home division’s design
and sourcing capabilities, prior to his
appointment as CEO on 2 April 2016.

Helen Weir
Chief Finance Offi cer

Appointed: April 2015

Skills, competence and experience:
Helen is a qualiﬁ ed accountant,
with over 25 years’ experience in
the ﬁ nance and retail sectors. She
brings substantial strategic ﬁ nancial
experience, and a wealth of signiﬁ cant
retail and consumer experience to
the Board. Helen has strong listed
company experience having been
Group Finance Director, Executive
Director, and Non-Executive Director
on the Boards of a number of major
companies. Helen is a Fellow of the
Chartered Institute of Management
Accountants and was awarded a CBE
for services to Finance in 2008.

Other roles: Non-Executive Director
of SAB Miller, Trustee of Marie Curie,
Non-Executive Director of the
Rugby Football Union.

Patrick Bousquet-Chavanne
Executive Director, Customer,
Marketing & M&S.com

Appointed: July 2013

Skills, competence and experience:
Patrick brings over 25 years of
extensive experience in the consumer
goods industry. His valuable strategic
insight is supported by his experience
in developing and marketing brands
globally and broad knowledge of
enhancing business performance
and customer experience in a
multi-channel environment.
Patrick played a key role in creating
the new marketing strategy for
Womenswear, and continues to lead
the transformation of M&S’s in-store
environment and the publishing
strategy for M&S.com. Patrick
assumed overall responsibility for
M&S.com and Plan A in May 2016.

Other roles: Non-Executive Director
of Brown-Forman Inc, Non-Executive
Director of Collectively.org.

INDEPENDENT NON-EXECUTIVE DIRECTORS

Vindi Banga
Senior Independent Director

Miranda Curtis
Non-Executive Director

Andy Halford
Non-Executive Director

Appointed: February 2012

Appointed: January 2013

Skills, competence and experience:
Miranda’s substantial experience
of the international consumer and
technology sectors, and extensive
knowledge of global industry
provides a valuable contribution
to the Board. During her 20-year
career with Liberty, Miranda led the
company’s investments in digital
distribution and content operations
across Continental Europe and
Asia-Paciﬁ c, most notably in Japan.

Other roles: Chairman of
Waterstones, Non-Executive Director
of Liberty Global plc, board member
of both the Institute for Government
and the Royal Shakespeare Company,
Vice-Chairman of Garsington Opera
and chairs African girls’ education
charity, Camfed.

Skills, competence and experience:
A chartered accountant, Andy has
a strong ﬁ nance background and
signiﬁ cant recent and relevant
ﬁ nancial experience gained from
CFO positions in global listed
companies. His extensive knowledge
of the UK and international consumer
market provides the Board with
valuable strategic insight. Andy is
a member of the Business Forum
on Tax and Competitiveness and
a Fellow of the Institute of Chartered
Accountants in England and Wales.

Other roles: Chief Financial Offi cer
of Standard Chartered plc.

Appointed: Senior Independent
Director in March 2015, Non-
Executive Director in September 2011

Skills, competence and experience:
Vindi has extensive consumer brand
knowledge and global business
experience, acquired over 33 years
in senior roles within the consumer
goods industry. His in-depth
knowledge of UK and international
trade and industry provides valuable
insight into business and enterprise
across the globe. He has strong
experience as a board member of
other listed companies and is the
recipient of the Padma Bhushan,
one of India’s highest civilian honours.

Other roles: Partner at Clayton
Dubilier & Rice, Director of Kedaara
Capital Investment Managers Ltd,
Kedaara Capital I Ltd and Kedaara
Holdings Ltd, Non-Executive Director
of Thomson Reuters and GSK,
Chairman of the Mauser Group and
the CBI’s Economic Growth Board,
member of the Governing Board
of the Indian School of Business.

Alison Brittain
Non-Executive Director

Appointed: January 2014

Skills, competence and experience:
Alison brings extensive ﬁ nancial and
commercial experience to the
Board, combined with considerable
knowledge of running large scale
consumer businesses. She is Chief
Executive of hospitality group
Whitbread, and was previously
Group Director of Lloyds Banking
Group’s Retail Division until July
2015. She has held a number of
senior positions in the ﬁ nancial sector,
particularly in retail, and has valuable
regulatory insight. Alison has an
MBA from Cambridge University’s
Judge Institute.

Other roles: Chief Executive
of Whitbread plc and member
of the Prime Minister’s Business
Advisory Group.

33
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

See p34 for Governance and Board structures

See p36-37 for Board activities in 2015/16

FIND OUT MORE

See p34 for Board roles and responsibilities

RETIREMENTS IN 2015/16

Laura Wade-Gery
Executive Director, Multi-channel

Marc Bolland
Chief Executive

John Dixon
Executive Director, GM

Appointed: July 2011

Skills, competence and experience:
Laura brings considerable retail,
e-commerce and customer
experience, gained from over 15 years
in senior roles in the retail sector.
Laura has been instrumental in the
improvement and modernisation
of our e-commerce and multichannel
capabilities, which she continues
to lead. In July 2014, Laura’s role was
expanded to include responsibility
for UK stores to provide greater
oversight and a fully integrated
approach to M&S’s multi-channel
strategy. Laura is currently on
maternity leave and is due to return
in September 2016.

Other roles: Non-Executive Director
of British Land, Trustee of Royal
Opera House Covent Garden Limited,
Trustee of Aldeburgh Music.

Retired: 2 April 2016. Marc stepped
down on 2 April 2016 after six years
as Chief Executive. He remains
available to the Board to assist in
the transition until 30 June 2016.

Resigned: 16 July 2015. After
29 years with M&S, John stepped
down in July 2015 to pursue new
career opportunities outside of
the Company.

Martha Lane Fox
Non-Executive Director

Retired: 2 April 2016. In line with best
practice, Martha chose not to seek
re-election at the AGM following
completion of her third three year
term and retired from the Board
on 2 April 2016.

N R

N A

GROUP SECRETARY

Amanda Mellor
Group Secretary and
Head of Corporate Governance

Appointed: July 2009

Other roles: Non-Executive Director
of Kier Group plc.

Richard Solomons
Non-Executive Director

Appointed: April 2015

Skills, competence and experience:
Richard brings strong commercial,
ﬁ nancial, consumer, branding and
global experience to the Board.
His extensive international retail,
and global consumer experience,
and role as a CEO of an international
business provides valuable insight
to the Board. During his career at
IHG, Richard was integral in shaping
and implementing IHG’s asset-light
strategy, which has helped the
business grow signiﬁ cantly since
it was formed in 2003, as well as
supporting the return of $10.4bn
to shareholders.

Other roles: Chief Executive of
IHG, Governor of the Aviation
Travel Industry Group of the World
Economic Forum, Member of the
Industry Real Estate Financing
Advisory Council.

Andrew Fisher
Non-Executive Director

Appointed: December 2015

Skills, competence and experience:
Andrew has substantial experience
of the international consumer and
technology sectors, and has led the
successful growth of a number of
technology-focused enterprises
over the past 18 years. He is currently
Executive Chairman of Shazam
Entertainment Limited, having
previously served as Chief Executive
Offi cer since 2005. Prior to that,
Andrew was European Managing
Director of Infospace Inc and founder
and Managing Director of TDLI.com.
He is a member of the Advisory Board
to the Secretary of State for the
Review of the BBC Charter.

Other roles: Executive Chairman
of Shazam Entertainment Limited,
Non-Executive Director of
MoneySupermarket.com Group plc.

BOARD DIVERSITY

The tables and graphics below
provide a visual outline of our
Board’s diversity in terms of
gender, range of experience
and length of tenure. More
information on our Board
Diversity Policy can be found
on page 41.

GENDER DIVERSITY
2 April 2016
(As at
year end)

24 May 2016
(As at date of
Annual Report)

GROUP BOARD

Male

62%

Male

64%

Female

38%

Female

36%

EXECUTIVE

Male

60%

Male

Female

40%

Female

50%

NON-EXECUTIVE

Male

62%

Male

71%

Female

38%

Female

29%

SECTOR EXPERIENCE

91%1
91%

100%
100%

RETAIL

CONSUMER

555%
55%

466%
46%

FINANCE

E-COMMERCE
& TECHNOLOGY

INTERNATIONAL
EXPERIENCE

NON-EXECUTIVE
DIRECTOR TENURE

0-1 YEAR 16.66%
(1 DIRECTOR)

1-3 YEARS 16.66%
(1 DIRECTOR)

3-6 YEARS 66.66%
(5 DIRECTORS)

KEY TO COMMITTEES

Nomination

Audit

Remuneration
Committee
Chair

Full biographical details of
each director are available on
marksandspencer.com/thecompany

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34
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

LEADERSHIP & EFFECTIVENESS
OUR BOARD CONTINUED

GROUP BOARD

MANAGEMENT
COMMITTEE

EXECUTIVE
BOARD*

PRINCIPAL
COMMITTEES

Audit

Remuneration

Nomination

OPERATING
COMMITTEES

Property

Fire, Health & Safety

Business Continuity

Plan A

* Going forward, this will become the Operating Committee

BOARD OVERVIEW

BOARD COLLABORATION

The Board and Committee structure
throughout 2015/16, is provided on the
right. As highlighted on page 09 of the
Strategic Report, going forward the
Management Committee will be disbanded
and the Executive Board will be renamed
the Operating Committee with renewed
membership. Operating Committee
membership is provided on page 09.
Updated Terms of Reference for this
Committee will be added to our corporate
website once agreed by the Board.

The work of the Board complements,
enhances and supports the work of the
Executive Board. We believe that eff ective
governance is realised through leadership
and team work. Collaboration across all
levels within the Board structure drives
a culture of continuous improvement in
standards and performance across our
business. Working together, all parts of
the Board structure conduct robust
interrogation of plans and actions,
ensuring high-quality decision-making
in all areas of strategy, performance,
responsibility and accountability.

ROLE OF THE BOARD AND ITS COMMITTEES

The Board is responsible for the
stewardship of the Company, overseeing
its conduct and aff airs to create sustainable
value for the beneﬁ t of its shareholders.
In performing this task, the Board
recognises that to be successful over the
long-term it has a wider duty to care for
the interests of employees, customers
and the communities in which the
Company operates, and whose support
is required to create sustainable value.

The Board discharges some of its
responsibilities directly and discharges
others through its Board Committees
and through management. The Terms of
Reference of the Board and its Committees
are included in our Governance Framework.

The Board agrees, and has collective
responsibility for, the strategy of the
Company. For M&S, our strategy is
understood to mean the development
of speciﬁ c actions aimed at satisfying
the needs of our target customer groups
across the product categories and in the
territories in which we choose to operate.
The articulation of our strategy will include
agreement on how our physical and
intellectual property and the skills of our
people should be used, developed and

enhanced to create competitive
advantage for the Company.

The Board delegates to executive
management, the execution of the
Company’s strategy and the day-to-day
management and operation of the
Company’s business. The Board is
responsible for overseeing, guiding and
holding to account management in
carrying out these responsibilities.

The Board is responsible for ensuring that
appropriate values, ethics and behaviours
for the conduct of the Company are agreed
and that appropriate procedures and
training are in place to ensure that these
are observed throughout the Company.
The Board has discussed and agreed the
key values of Inspiration, Innovation,
Integrity and In Touch and these underpin
the required values, ethics and behaviours.

Clear Terms of Reference outline the
full schedule of matters reserved for
the Board’s decision and that of its
key committees.

The Board is responsible for:

> Ensuring leadership through eff ective
oversight and review. Supported by
its principal committees – Audit,

Remuneration, and Nomination – the
Board sets the strategic direction and
aims to deliver sustainable shareholder
value over the longer term.

> Overseeing the implementation of

appropriate risk assessment systems
and processes to identify, manage
and mitigate the principal risks of the
Company’s business. Much of this work
is delegated to the Audit Committee.

> Eff ective succession planning at Board
level and for assessing the processes in
place to ensure that there is appropriate
succession planning amongst senior
management. Much of this work is
delegated to the Nomination Committee.

In addition to the other matters referred
to in its framework, the Board is responsible
for speciﬁ c matters relating to strategy,
ﬁ nance, risk management, internal control
and audit, legal, reputation and public
company management. These, along with
the individual roles of the Board members,
are covered by the ‘Schedule of Matters
Reserved to the Board’ in the Marks
and Spencer Group plc Governance
Framework, and can be found at
marksandspencer.com/thecompany.

35
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

FIND OUT MORE

See Board activities overview on p36-37

See our Board biographies on p32-33

See our Remuneration Report on p50-71

BOARD COMPOSITION, ROLES AND ATTENDANCE AS AT YEAR END

EXECUTIVE
DIRECTORS

ATTENDED

MAX
POSSIBLE

RESPONSIBILITY
IN 2015/16

LINKED TO
REMUNERATION

CHAIRMAN

ATTENDED

POSSIBLE RESPONSIBILITY

MAX

8 Strategy & Group
performance

8 Food performance

from April to July 2015
General Merchandise
performance thereafter

8 Group Financial

Performance and
Ecommerce distribution

8 Marketing & International

performance

3 Clothing & Home
performance

4 UK Retail & Multi-channel

performance

Chief Executive
Marc Bolland
(Retired 2 April 2016)

Chief Executive
Designate
Steve Rowe
(CEO from 2 April 2016)

Chief Finance
Offi cer
Helen Weir

Executive Director
Patrick Bousquet-
Chavanne1

Executive Director
John Dixon
(Resigned 16 July 2015)

Executive Director
Laura Wade-Gery
(Maternity Leave from
1 September 2015)

BOARD MEETINGS

Robert Swannell

8 Board governance
and performance,
and shareholder
engagement.

NON-EXECUTIVE
DIRECTORS

Vindi Banga2

Alison Brittain

Miranda Curtis

Andrew Fisher
(appointed
1 December 2015)

Martha Lane Fox3
(Retired 2 April 2016)

Andy Halford

Richard Solomons

ATTENDED

POSSIBLE RESPONSIBILITY

MAX

8 Independent non-

executive directors
assess, challenge and
monitor the executive
directors’ delivery of
the strategy within
the Board’s risk and
governance structure.
In addition, they review
the integrity of ﬁ nancial
information, devise
appropriate succession
plans, and monitor
Board Diversity.

The Board held eight scheduled meetings
during the year, and individual attendance
is set out above. Suffi cient time is provided
at the start and end of each meeting for the

Chairman to meet privately with the
Senior Independent Director and the non-
executive directors to discuss any matters
arising. At the start of each meeting, one

director provides feedback on the previous
meeting, highlighting matters that received
a good level of debate and areas where
further improvements could be made.

This table provides details with regard to scheduled meetings held in the 2015/16 ﬁ nancial year.
1. Patrick Bousquet-Chavanne was unable to attend the meeting on 18 May due to overseas personal commitments.
2. Vindi Banga was unable to attend the meeting on 17 June due to business commitments with CD&R.
3. Martha Lane Fox was unable to attend the meeting on 18 May due to personal commitments.

See Board Activities on p36-37

MONITORING AND OVERSIGHT

RISK MONITORING AND OVERSIGHT

STRATEGIC PROCESS

Progress against the strategy is closely
monitored by the Executive Board and
discussed at each Group Board meeting.
Given the change in leadership, announced
at the start of January, the Board’s annual
two-day strategy meeting was postponed.
Much of the proposed agenda for this
meeting has subsequently been discussed.

The Board has since debated the priorities
and the longer-term challenges, some of
which we have communicated earlier in
this report. We have identiﬁ ed opportunities
for improvement and continue to formulate
an agreed action plan. The non-executive
directors continue to share their expertise
and provide independent oversight to
these discussions.

Protecting the business from operational,
ﬁ nancial and reputational risk is an essential
part of the Board’s role. Both the directors
and senior management focus on not just
the short, but also the longer-term and
continue to be more actively involved in
risk management and internal controls;
an important part of stewardship and
key to ensuring the long-term viability
of the business.

The Group Risk Proﬁ le, and risk appetite
are owned by the Board. Their compilation
is facilitated by Group Risk, using business
area risk registers and one-on-one
interviews with Board members and
business unit directors. Oversight and
independence is provided in the process
through the Audit Committee, which
ensures that the risks the Board include
in the Group Risk Proﬁ le continue to
reﬂ ect the business’s strategic objectives.
An Internal Audit plan is then mapped
to the Group Risk Proﬁ le demonstrating
where assurance is provided over
mitigating activities.

INDEPENDENCE OF DIRECTORS

The Board reviews the independence of
its non-executive directors as part of its
annual Board Eff ectiveness Review.

The Chairman is committed to ensuring the
Board comprises a majority of independent
non-executive directors who objectively
challenge management, balanced against
the need to ensure continuity on the Board.

All non-executive directors have served
fewer than six years on the Board.

The Board considers that all of the
non-executive directors bring strong
independent oversight and continue to
demonstrate independence. The Board
recognises the recommended term
within the UK Corporate Governance
Code. It is mindful of the need for suitable
succession, and therefore maintains a clear
framework of the time each non-executive
has served the Company and the skillsets
that each provides.

See details and experience of each director

on p32-33

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36
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

LEADERSHIP & EFFECTIVENESS
OUR BOARD CONTINUED

BOARD ACTIVITIES

TOPIC

ACTIVITIES/DISCUSSION

ACTIONS ARISING

PROGRESS

Strategy

Discussed strategic
priorities, including
the combined Food
and Clothing &
Home proposition.

Discussed the Group’s
capital structure
and ﬁ nancial strategy,
including capital
investments,
shareholder returns
and the dividend policy.

Reviewed the
development
of the strategic
logistics network.

> Conduct a thorough review of UK store estate,

including format and proﬁ tability.

> Improve capability in buying, merchandising
and design in respect of Clothing & Home.

> Review organisational capability across

all departments.

> Improve processes around succession planning
to ensure candidates build required skillset.
> Provide more challenge to accepted practices.
> Become more agile and less risk averse in piloting

new initiatives.

> Drive simplicity in our culture, organisational

structure and processes.

> Continued investment to promote sustainable

business growth over the long-term.

> Utilise improved cash-ﬂ ow position to implement
ongoing, sustainable programme of returns of
capital to investors.

> Consider scenarios for future business requirements.
> Evaluate proposals for improved network design.
> Investigate opportunities for further operational

improvements.

> Accelerated rollout of new Simply Food stores.
> Senior leadership appointments made in

critical areas with proven talent.

> Centralised design authority through

introduction of Design Director structure.
> New design and product forums introduced
to encourage colleagues to share knowledge
and upskill.

> Identiﬁ ed actions to bring brand proposition

to life in store.

> Strong cash generation due to better
buying, lower capital expenditure and
robust cost management.

> £150m returned to investors through

a share buyback programme.

> Total dividend for the 2015/16 up to 18.7p,

a 3.9% increase on last year.

> Substantial progress made in development
of logistics network design in support of
business requirements.

> Detailed transition plan to move to a single

tier network.

> Lessons learned from early stages of project
leading to improved processes for current
and future development phases.

Governance
& risk

Reviewed international
strategy, including
key priorities.

> Review of international franchise operations in the

> Key growth drivers in franchise markets

context of a changing macro-environment.
> Identify and prioritise initiatives to deliver the

international strategy.

identiﬁ ed.

> Increased focus on proven markets

and concepts.

> Deliver the relevant product ranges for local

> Write down of assets and exit costs linked

customers.

> Build an international supply chain that is ﬁ t

for the future.

> Adapt and implement e-commerce business

model to drive sustainable and proﬁ table growth.

to withdrawal from Balkan region.

> Proposed store openings kept under review
to ensure appropriate balance of food and
full line stores in target markets.

Discussed internal
governance processes
underpinning
key programmes
and initiatives.

Discussed new
Corporate Governance
developments and
disclosure requirements.

Reviewed progress
against the 2015/16
Board Action Plan.

Half yearly review of
Group Risk Proﬁ le,
covering core internal
and external risks,
risks driven by business
change and areas of
emerging risk.

Conducted a review
of the Company’s cyber
security position.

> Review the business’s programme management

> Progress made in pinpointing particular

and post investment review processes to
improve delivery.

areas for improvement and implementing
a ‘One Best Way’ approach to programme
management.

> Clearly deﬁ ne the Company’s risk appetite and

> Review of risk appetite statements in the

determine the nature and extent of principal risks.
> Discuss and determine the Company’s longer-term
viability disclosures, accounting for current position
and principal risks.

context of the principal risks and objectives.
> Agreed scope, appropriate lookout period

and timeline in respect of the newly required
long-term viability statement, in line with
the UK Corporate Governance Code.

> Conduct an internally facilitated Board Evaluation
> Obtain and evaluate director feedback on the

> Introduced internal Board framework
> Agreed 2016/17 action plan with clear process

processes, eff ectiveness and working of the Board
and Committees.

for monitoring during the year.

> Assess the eff ectiveness of the Company’s risk

> Agreed a robust set of Group level risks

management systems.

> Review completeness and ordering of the Group
Risk Proﬁ le, including key risk movements, and
considered appropriate mitigating factors.
> Ongoing robust debate around risk appetite.

> Assess the strength of M&S’s cyber security

policies, capability and areas of risk.

> Discuss the structure of our approach to

cyber security in light of recent changes to data
protection legislation.

> Provide an objective assessment of business

capabilities in light of the relevant risks.

and mitigating activities, which are
regularly monitored.

> Further developed the Board’s approach

to risk appetite and agreed a set of
Group-level statements.

> Considered movements in key risks resulting

from changes to likelihood or business
impact, recategorising as appropriate.

> Robust plans in place to ensure the business‘s
cyber security systems remain suffi ciently
robust going forward.

> Existing capabilities comprehensively

reviewed and consideration given to future
developments in the area of cyber security.

> Areas of risk identiﬁ ed and future

priorities agreed.

37
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

See our Board Eff ectiveness Review on p39

BOARD ACTIVITIES CONTINUED

TOPIC

ACTIVITIES/DISCUSSION

ACTIONS ARISING

PROGRESS

Leadership &
Employees

Discussed succession,
talent development
and diversity across
management.

> Review Board composition and diversity policy.
> Continue to support executive director and senior

management development.

> Deliver robust succession planning and nurture
internal talent pipeline to provide our people
with the required skills and capabilities for today
and for the future.

> 39% of our Board members were female as

at close of the 2015/16 ﬁ nancial year, reducing
to 36% following the retirements of Marc
Bolland and Martha Lane Fox on 2 April 2016.

> Ongoing initiatives include Leadership

Development Service, mentoring and coaching.

> Signiﬁ cantly refreshed approach to

development of internal talent through
introduction of initiatives such as the
‘Fit To Lead The Future’ programme.

Reviewed the composition
and succession planning
procedures of the Board
and its Committees.

Discussed employee
engagement, reward
and pensions.

> Ongoing commitment to maintaining a balance
of appropriate skills and experience among the
Board and its Committees.

> Approved the appointments of a new
Chief Executive and an additional
Non-Executive Director.

> Conduct a thorough review of how we reward our
people with emphasis on fairness, consistency
and sustainability.

> Evaluate results of annual ‘Your Say’ and quarterly
‘Pulse’ surveys to identify areas for improvement.

> Proposed new approaches to pay and pensions

and initiated a period of consultation with
employees through our National Business
Involvement Group.

> Increased engagement with our people across

all areas of the business.

Customers

Discussed improvement
of customer engagement
through introduction of
innovative new reward
programme.

> Introduce a new customer engagement strategy
and encourage a more centralised relationship
with the customer.

> Drive further promotion of Sparks to help

customers understand the proposition and the
beneﬁ ts of membership.

> Successful launch of Sparks with over 4m
registered members since October 2015.

> Progress made in addressing early challenges

following launch.

Reviewed Clothing &
Home strategy.

Discussed development
of brand and customer
proposition.

Reviewed the performance
and progress of M&S.com.

Discussed security risks
aff ecting the business.

> Drive market share growth through improved product

availability, pricing consistency and range focus.

> Support multichannel growth.
> Build foundational elements required to support

sustainable growth in Clothing & Home.

> Notable successes in refreshed style
credentials and improvements in
product quality.

> Evaluate new concepts and in-store enhancements

> Directional focus on customer with emphasis

to improve customer experience.

> Consider future evolution of the M&S brand and

product proposition.

> Continue to reﬁ ne our customer understanding.

on simplicity and ﬁ nancial responsibility.
> Ongoing rollout of refreshed store fascias

and enhancements to in-store environments.

> Review of developments during the year and

> Progress made in embedding digital mind-set

further promotion of digital mind-set as key facet
of development strategy.

> Continue to invest in building digital capability
to provide a better experience for customers.

at heart of strategy.

> Strong growth and improved returns achieved
in 2015 following challenging transitional year
in 2014.

> Continued progress in improving customer

satisfaction.

> Review of incident reporting and management

> Delivered crisis management exercises across

procedures to ensure ongoing security awareness.

UK Crisis Management Teams and ‘duty
manage with conﬁ dence’ courses across
the International business.

> 57 achieved, 5 not achieved.
> 40 on plan, 1 behind plan.
> 1 commitment cancelled.
> Identiﬁ ed strategic priorities for 2016/17.

Values

Discussed continued
evolution of Plan A.

> 104 Plan A commitments to be achieved by 2020.
> Review progress made in 2015/16 and set priorities

for 2016/17.

Shareholder
engagement

Reviewed organisational
culture and improvements
to our ways of working.

> Review ways of working across stores and offi ces.
> Consider implementation and business impact of

the National Living Wage.

> Introduced ‘Smarter Working’ workstream to
evaluate and improve use of offi ce space.
> Proposed a new approach to future pay

> Evaluate M&S’s pay positioning in context of wider

positioning.

retail industry.

Encouraged strong
engagement with
investors and
stakeholders.

Reviewed feedback
from shareholders in
advance of AGM.

Reviewed the success
of the ﬁ rst year’s
operation of the
Payment Plus Scheme.

> Actively support engagement opportunities.

> 30 largest shareholders invited to our

ﬁ fth annual Governance Event, hosted by
the Chairman.

> Speciﬁ c issues raised by shareholders to be

> Communicate progress made in key topics

addressed in Chairman’s statement.

raised by shareholders.

> Evaluate overall performance of the scheme
during the year and consider future viability.
> Consider feasibility of extending the scheme

to nominees.

> Successful delivery of the scheme over
two dividend payments during the year.

> Ongoing assessment of the scheme’s

performance to date.

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38
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

LEADERSHIP & EFFECTIVENESS
OUR BOARD CONTINUED

SUCCESSION

In January 2016 we announced that after
six years in the role, Marc Bolland would
retire as CEO. We advised that Marc would
be succeeded by Steve Rowe on 2 April.
At the time of the announcement Steve
was Executive Director of General
Merchandise. To ensure a smooth transition
Marc agreed to remain available to Steve
and the Board until 30 June 2016.

When Marc joined M&S he indicated
informally that he would serve a tenure
of ﬁ ve to six years. Having guidance from
the date of appointment assisted with the
planned and orderly succession of the CEO
role. In the summer of 2015, Marc indicated

that he was considering his retirement
and that the Board, with the assistance
of the Nomination Committee, may want
to step up their succession search.

In reaching its conclusion to appoint
Steve as CEO, the Nomination
Committee set a rigorous assessment,
development and selection process,
including external benchmarking.

Succession is not just about Board
appointments. Succession and succession
planning remain key agenda items to
ensure a continuous supply of suitable
individuals ready to take over when
directors, senior staff or other key

employees leave the business in a range
of situations. In addition, our focus on
succession demonstrates our commitment
to recruit, retain, develop and promote high
performing staff .

We believe our approach to succession
is strategic, thoughtful and practical.
We appoint on merit against objective
criteria and with due regard to the
beneﬁ ts of diversity in its widest deﬁ nition.
We ensure that new appointments come
with the required qualiﬁ cations, experience
and skills to meet the challenges ahead.

DIRECTOR INDUCTION

STEVE ROWE INDUCTION

Steve already had a unique considerable
understanding of M&S. His journey to the
Board started when he joined the business
over 25 years ago. Steve undertook and
progressed through a number of store-
based positions, which provided him with
a clear understanding of our customers,
their expectations, and the demands on
our store-based employees.

Moving to Head Offi ce in 1993, Steve
worked in a variety of roles across all
areas of the business including menswear,
merchandising, home, online and the store
estate. In 2012 he was appointed to the
Board as Executive Director of Food and

ANDREW FISHER INDUCTION

During the year, the induction process
has been reviewed based on feedback
from earlier tailored programmes.
The comments from the review were
used to update the induction process for
Andrew Fisher, who joined the business in
December 2015.

Andrew’s induction was comprehensive
and tailored to his understanding of
the business. It was led by the Chairman
and covered:

Company structure and strategy, including:
our history; strategy (including details of all
key investment decisions), key people and

received a thorough induction led by
the Chairman. Steve led Food through
three years of continued growth. In 2015
Steve moved from Food to Clothing &
Home. These roles have provided an
in-depth understanding of the business
and the structures within our offi ces.

Over the past two years, Steve has
received mentoring from senior business
leaders and has undertaken executive
development programmes in the UK
and overseas. This was to broaden his
understanding of core business functions
and global strategic management.

Over his time with M&S Steve has
experienced many changes to the business
and operated under the diff ering leadership
styles of six Chief Executives.

Following the announcement of his
appointment as CEO, Steve met with the
Chairman, each of the non-executive and
executive directors, the Group Secretary,
members of senior management and
a wide range of individuals from across the
business. Steve met with the Company’s
lead audit partner and its remuneration
advisors. Steve has met with some of our
private and institutional shareholders.

succession plans; Board procedures
including the Governance Framework,
Code of Ethics and Behaviours; Board
calendar, minutes from previous meetings,
eff ectiveness reviews and action plans;
ﬁ nances, performance, operating plans,
current KPIs and targets, operational
overview of all business areas; key
relationships, including suppliers and
major contracts; Group Risk Proﬁ le and
our approach to risk; insight into key
audits and areas of focus.

Industry and competitive environment,
including: customer trends; consumer
and regulatory environment including

governance and all relevant consumer
and industry bodies, Corporate Social
Responsibility, environment and
sustainability.

Sentiment and reputation, including: brand
positioning and media proﬁ le; marketing
campaigns; brand values; analyst and
investor opinion; review of investor surveys;
share register and voting history; key
stakeholder relations including employees,
customers, suppliers and service providers;
opinion leaders; an overview of our
remuneration policy and pensions.

39
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

BOARD EFFECTIVENESS REVIEW

The assessment of the M&S Board was
conducted according to the guidance set
out in the UK Corporate Governance Code.

Given the change in leadership, the Board
were keen for its evaluation to highlight
learnings from the past and build on these
for the future. The evaluation was internally
facilitated by the Group Secretary and
undertaken from February to April 2016.

Stage 1: A comprehensive questionnaire
(60 questions with rankings and open text
boxes) was sent to each Board member,
along with a copy of the previous year’s
evaluation and action plan.

Stage 2: Alongside the questionnaire,
Board members participated in one-on-
one discussions with the Group Secretary.

The evaluation was based around a
number of key areas:

> Board composition, role, skills,

diversity, balance and experience;

> Board leadership and culture;

> Agenda, information, papers and

resource;

> Monitoring company performance;

> Strategic and risk debate;

> Governance, regulatory compliance

and support;

> Committee performance.

The Board was asked to reﬂ ect on its
action plan set out at the start of the
2015/16 ﬁ nancial year and the summary
of the Board’s assessment of progress
against this plan as at December 2015.

Stage 3: A report was compiled by the
Group Secretary based on the information
and views provided. All recommendations
were based on best practice as described
in the UK Corporate Governance Code
and other current corporate
governance guidelines.

Stage 4: Draft conclusions were discussed
with the Chairman and subsequently the
whole Board at its meeting in May 2016.
The conclusions of that discussion were

recorded in the minutes of the meeting.
Robert Swannell also received a separate
report with feedback on individual directors.
Following the Board meeting, the Group
Secretary gave feedback on the Chairman
to the Senior Independent Director,
and to the Committee Chairmen on
the performance of each committee.
The Senior Independent Director also met
with the non-executive directors to review
the Chairman’s performance. This review
is then shared with the Chairman.

STAGE 1

COMPREHENSIVE
QUESTIONNAIRE

STAGE 2

ONE-ON-ONE
DISCUSSION

STAGE 3

STAGE 4

EVALUATION AND
REPORTING

DISCUSSION WITH
CHAIRMAN AND
THE BOARD

The Board evaluation for the 2016/17 ﬁ nancial year will be facilitated by Fﬁ on Hague.

BOARD REVIEW INSIGHTS 2015/16

> Overall the Board is considered strong,

bringing a good balance and mix
of expertise and experience and
off ering real diversity of view
and perspective.

> Progress was felt to have been

made against the 2015/16 Action Plan,
particularly in relation to the quality
of management information.

> The subsequent discussions on the
risk process and risk appetite, post
investment reviews and action follow
up were positively highlighted.

> However, despite the progress on

last year’s evaluation, views on Board
eff ectiveness continue to be tempered
by the overall business performance.

> As a result, items from last year’s
Action Plan will continue to form
the base for the 2016/17 Plan.

> Board Committees were all considered
to work well and were noted for their
level of debate, grasp of key issues
and overall subject and regulatory
knowledge. The Action Plans for the
Nomination, Audit and Remuneration
Committees are set out on pages
40 to 41, 42 to 46 and 50 to 71 respectively.

BOARD ACTION PLAN

THE BOARD ACTION PLAN 2016/17 WILL COVER:

> oversight of business change and

performance;

> key business and strategic risks and
associated risk appetite parameters;

> key performance indicators and link to

strategic context;

> greater knowledge of and interaction
with senior management and wider
employee community.

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40
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

LEADERSHIP & EFFECTIVENESS

NOMINATION COMMITTEE
REPORT

The Nomination Committee and the Board have
ensured that development, mentoring and continued
ens
assessment remain key agenda items.

ROBERT SWANNELL CHAIRMAN OF THE NOMINATION COMMITTEE

INTRODUCTION

Earlier in this report I provided detail on the
Board changes during the year. Succession
and director development have been key
areas of focus for the Committee this
year, culminating with the appointment
of Steve Rowe as the new CEO, and the
appointment of a non-executive director,
Andrew Fisher.

For the CEO and executive director
appointment, selection is based on
the experience and skills required for
speciﬁ c roles, for which a speciﬁ cation is
developed and agreed. For the succession
of non-executives, the Nomination
Committee considers the combination
of skills and experience required to fulﬁ ll
the Board’s purpose. There is a well-deﬁ ned

speciﬁ cation for each appointment with
a clear understanding of the attributes
and values required to help the eff ective
functioning of the whole Board. The Board
explicitly acknowledges the need for
diversity in its composition and in
particular, that there should be a strong
representation of women.

Emergency succession planning is also
an important area of discussion for the
Committee, ensuring the business
develops a framework with clearly
identiﬁ ed individuals capable of covering
key management roles on an interim basis.
All these individuals then receive the
necessary coaching to ensure they have
the required skills to provide any critical
support when needed.

The eff ectiveness of our emergency
planning was tested following the
resignation of John Dixon, Executive
Director of GM. Steve Rowe moved from
Food, which he had run successfully for
three years, to take over from John. Andy
Adcock, who had worked closely with Steve,
was appointed to lead Food. In addition,
we reallocated responsibilities to cover
Laura Wade-Gery’s maternity leave.

Development for directors and high
performing individuals below Board level
has been an essential area of focus.
Coaching and mentoring is provided to
develop and enhance speciﬁ c skill sets,
and the Committee believes the beneﬁ ts
of this approach are critical for developing
our own talent for the future.

EFFECTIVENESS OF THE NOMINATION COMMITTEE

Committee review
The Committee’s performance was
internally evaluated this year by the Group
Secretary. The Committee has had a busy
year and its remit and eff ectiveness were
tested, both in terms of succession and
emergency planning. The Committee
considered its composition during the year

following Steve’s appointment as CEO.
In order to ensure independence, the
Committee decided that its membership
should only include independent non-
executive directors. Therefore, Steve will
not be joining the Nomination Committee
as a member, however, he will attend
Committee meetings when invited.

MEMBER ATTENDANCE

Vindi Banga

Marc Bolland

Alison Brittain

Miranda Curtis

Andrew Fisher

MEMBER
SINCE

3 Sept 2011

1 May 2010

1 Jan 2014

3 Feb 2012

1 Dec 2015

Martha Lane Fox

1 June 2007

Andy Halford

1 Jan 2013

Richard Solomons

13 Apr 2015

Robert Swannell

4 Oct 2010

NUMBER OF
MEETINGS
ATTENDED

MAXIMUM
POSSIBLE
MEETINGS

%
OF MEETINGS
ATTENDED

100%

Nomination Committee activity
The Committee held a signiﬁ cant number
of unscheduled meetings to support
CEO succession. It continued to support
succession and development of the
executive directors, implemented
development initiatives for senior
executives, international business school
training, executive coaching and non-
executive director mentoring. Committee
members also participated in several
employee-focused and diversity-based
initiatives, giving increased access to the
organisation, direct employee feedback
and greater visibility of high potential
talent.

ACTION PLAN 2016/17

> Continue to review succession plans

for the Board and key roles across the
business;

> Continue to identify future talent

pipeline;

> Review development initiatives for

directors; and

> Continue to identify opportunities
for broader business engagement.

41
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

the ‘Fit to Lead the Future’ programme,
Fit For the Future Leadership journey,
Line Manager focus and Emerging
Leaders approach.

> The Leadership Development Service has
been in place for two years and continues
to identify and partner key senior talent
across the business, broadening their
skillsets and experience to prepare them
for future opportunities. This has been
supported through greater boardroom
exposure, non-executive and Trustee
roles outside of M&S, and participation
in mentoring schemes.

representation on the Board. The Board
conﬁ rms that neither Egon Zehnder or JCA
has any other connection with the Company.

Report annually against these objectives
and other initiatives taking place within
the Company which promote gender and
other forms of diversity.

The Board has made strong progress against
the key policy objectives during the year,
as reported above.

In addition, the business has continued to
promote diversity with the introduction or
continuation of key initiatives:

> Access to International Business

> The annual Board evaluation process

School Training.

BOARD DIVERSITY POLICY

Since the launch of the Board Diversity
Policy in 2012, the Board has made progress
in broadening the diversity of the Board
and senior management. In 2015, the Board
reviewed the policy to ensure that it
continues to drive the beneﬁ ts of a diverse
Board and workforce across the business.
The Board agreed that the ambitions and
objectives set out in the policy remain
relevant targets against which to measure
our progress.

For further information on employee

diversity, including gender, ethnicity
and age, see p23 of our Plan A Report
marksandspencer.com/plana2016.

BOARD DIVERSITY: PROGRESS UPDATE

> Senior management mentoring and

Maintain a level of at least 30% female
directors on the Board over the short
to medium term.

As highlighted earlier in the report, changes
to the Board were made during the year to
2 April, experienced two retirements and one
resignation. Despite the reduced overall size
of the Board, the percentage of women on
the Board remains strong at 36% at time of
publication. The charts on page 33 provide
a clearer picture of our Board diversity.

The Board remains committed to
maintaining at least a 30% female
representation on the Board, whilst ensuring
that diversity in its broadest sense remains
a central feature. However, the Nomination
Committee will continue to recommend
appointments to the Board based on merit,
measured against objective criteria and the
skills and experience the individual off ers.

The Board is also committed to
strengthening the pipeline of senior female
executives within the business and has taken
steps to ensure that there are no barriers
to women succeeding at the highest levels
within M&S.

In 2016, M&S was again listed in The Times
Top 50 Employers for Women for the sixth
year running.

Assist the development of a pipeline of
high-calibre candidates by encouraging
a broad range of senior individuals within
the business to take on additional roles
to gain valuable Board experience.

During the year, the Board continued to
focus on strengthening the pipeline of
executive talent in the Company. It remains
committed to learning and building on
existing programmes while introducing new
initiatives to broaden and develop the strong
talent which exists across the business.

Key initiatives include:

> A comprehensive talent review presented

to the Board annually, mapping
successional candidates and opportunities
across all senior roles within the business.

> A thorough refresh of our approach to

talent development through the
introduction of new initiatives, including

coaching schemes, including individual
leadership assessments, and non-
executive director sponsored lunches
and breakfasts.

Consider candidates for appointment as
non-executive directors from a wider pool,
including those with little or no listed
company board experience.

During the year, the Nomination Committee
discussed the successional needs of the
Board in respect of its non-executive
directors, and continues to work closely with
executive search agencies in compiling long
and short lists of candidates. During the
search for the most recent appointments,
the Board identiﬁ ed and interviewed a range
of candidates from various backgrounds
and industries, all of whom were measured
against criteria agreed at the start of the
process. The Chairman also meets informally
with a range of people introduced by third
parties or through direct approaches.
Although we do not currently openly
advertise our non-executive director
positions, we appreciate the beneﬁ t of this
approach and will keep this under review.

Ensure long lists of potential non-
executive directors include 50%
female candidates.

The Board remains committed to ensuring
that high-performing women from within the
business and from a variety of backgrounds,
who have the requisite skills, are given
greater exposure to the nomination
committees of FTSE100 companies. Once
again, the Board met its commitment, and
all non-executive director long lists in
2015/16 included 50% female candidates.

Only engage executive search ﬁ rms
who have signed up to the voluntary
Code of Conduct on gender diversity
and best practice.

The Board continues to support the nine
principles of the Executive Search Firms
Voluntary Code of Conduct on gender
diversity, demonstrated by remaining
committed to only engaging executive
search ﬁ rms who are signatories to this code.
During the year, we worked closely with Egon
Zehnder and JCA, and maintained our focus
on the targets and ambitions around female

includes an assessment of the Board’s
diversity including gender, helping to
objectively consider its composition
and eff ectiveness.

> The M&S Inspiring Women’s Network,

launched in 2014, continues to support the
progress of women in our business, giving
access to a range of role models, providing
informal mentoring and networking
opportunities, and creating a forum for
discussion to explore and address the
career challenges women face.

> Continued involvement in the

government-backed 30% Club, an
organisation committed to increasing
female representation on UK Boards.

> The MBA Leadership Programme is in its
ﬁ fth year, recruiting and developing
talented MBA graduates from international
business schools; to date intake into the
programme has been over 50% women.

> A number of programmes to help people
in our communities, including Marks &
Start, Marks & Start Logistics and Make
Your Mark are successfully helping young
people, the homeless, lone parents and
those with disabilities, to ﬁ nd work in our
stores and distribution centres.

Report annually on the outcome of the
Board evaluation, the composition and
structure of the Board as well as any
issues and challenges the Board is facing
when considering the diverse make-up
of the Company.

We continue to regard the Board evaluation
process as an important means of
monitoring our progress. Full details of the
2015/16 Board evaluation and the Action
Plan are on page 39. We remain committed
to getting the right balance of internal
versus external hires and work towards
understanding and managing some of the
challenges we face, such as:

> International management experience

reﬂ ective of the customers and
communities we serve; and

> Any challenges women face in reaching
regional management positions and
above, within the business.

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42
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

ACCOUNTABILITY

AUDIT COMMITTEE
REPORT

The Committee continue to challenge the
risk and assurance programme, ensuring
it is embedded throughout the business.

ANDY HALFORD CHAIRMAN OF THE AUDIT COMMITTEE

INTRODUCTION

As Chairman of the Audit Committee, I am
pleased to present the Audit Committee’s
report for the year ended 2 April 2016.

Over the following pages we share
discussions from the boardroom and
provide insight into the workings of the
Audit Committee and its activities in
the year, as well as update you on the
eff ectiveness of our statutory auditor
(Deloitte) and the fees they received for
non-audit work undertaken. It provides an
overview of the signiﬁ cant issues the Audit

Committee assessed and the Committee’s
opinion on the Annual Report when viewed
as a whole, including how it has assessed
the narrative reporting in the front of the
report to accurately reﬂ ect the ﬁ nancial
statements in the back.

This report also shares some of the insight
we received from the executive updates
presented to us from across the business.
These continue to provide the Committee
with real insight into the business’s
challenges and its aspirations. These also
tell us how the risks are being managed and

mitigated throughout the organisation,
as well as helping the Committee
members understand the progress being
made towards the strategic objectives.
The updates provide us with an opportunity
to challenge, discuss and debate with the
presenters whilst sharing our experience
and providing an independent perspective.

Looking forward to the next 12 months,
the Committee will continue to focus on
the audit, assurance, and risk processes
within the business, as well as monitor
changes in EU and UK regulation.

AUDIT COMMITTEE ACTIVITY

> Supported the work to draft the

EFFECTIVENESS OF THE AUDIT COMMITTEE

As part of the annual review of the
eff ectiveness of the Committee,
the expertise of the members is
considered and reviewed. The Board
is satisﬁ ed that the Committee
members bring a wide range and
depth of ﬁ nancial and commercial
experience across various industries,
and that Andy Halford meets the
speciﬁ c requirement for recent
and relevant ﬁ nancial experience.

> Remained focused on the audit, assurance
and risk processes within the business,
and maintained oversight of ﬁ nancial
and other regulatory requirements.

> Reviewed the Group’s system of internal
control and risk management, and any
changes in accounting policies and
impact on our ﬁ nancial statements.

> Discussed and reviewed the non-

underlying items that may impact
the performance of the business.
> Reviewed the process and timeline

for assessing the eff ectiveness of the
external auditor.

> Provided oversight of particular

business risks including International
retail and ethical sourcing.

MEMBER ATTENDANCE

MEMBER
SINCE

NUMBER OF
MEETINGS
ATTENDED

MAXIMUM
POSSIBLE
MEETINGS

%
OF MEETINGS
ATTENDED

Andy Halford (Chairman)

1 Jan 2013

Alison Brittain

Miranda Curtis

Andrew Fisher
(Appointed 1 December 2015)

Martha Lane Fox
(Retired 2 April 2016)

11 Mar 2014

4 Mar 2015

3 Feb 2016

1 Jun 2007

100%

80%

100%

deﬁ nitions of risk appetite for the business.

> Reviewed the design and scope of the
assurance plan, with particular focus
on key strategic priorities.

> Received and discussed speciﬁ c

business presentations relating to
risks within the Group Risk Proﬁ le.
> Reviewed formal announcements on
the Group’s ﬁ nancial performance,
including an assessment of the
estimates and judgements.

Some members of senior management
are invited to attend the Audit Committee
meeting to provide technical business
information as needed. Therefore, we
allocated speciﬁ c time for Committee
members to meet without management
present, prior to each meeting. At the end
of each Committee meeting we meet
separately with the lead audit partner from
Deloitte and the Head of Internal Audit &
Risk, to provide an opportunity to discuss
matters without executive management
being present. In addition, I regularly hold
separate one-to-one meetings with the
Chief Finance Offi cer, Director of Group
Finance, Head of Internal Audit & Risk,
other senior management, and with the
lead audit partner. These are usually before
Committee meetings as this enables me
to better understand the issues and any
areas of concern, and to allow suffi cient
time for meaningful discussion at the
subsequent meeting.

43
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

EFFECTIVENESS OF THE AUDIT COMMITTEE (CONTINUED)

AUDIT COMMITTEE ACTION PLAN

The Audit Committee’s performance
was reviewed within the framework of
the wider Board Eff ectiveness Review.
The Committee received positive
feedback on the way it challenges
the business and was seen as open,
transparent and eff ective. Areas of
improvement were highlighted, discussed
and debated by the Committee, and
included as part of the action plan for
the coming year. The Committee made

good progress on the 2015/16 action
plan by continuing to focus on our
international business and ethical
sourcing, monitoring the Group risk
management process, and supporting
the development of the assurance plan.

Looking ahead, the Committee will remain
focused on the audit, assurance and risk
processes within the business, and
strengthen its oversight of ﬁ nancial and
other regulatory requirements.

The action plan for 2016/17:

> Review the mitigating controls over

the Group’s principal risks and assess
the level of assurance provided.
> Continue to support risk assurance
mapping across the Group, with
particular focus on strategic priorities.

> Increased oversight of the Board’s
management of cyber security risk.
> Monitor and respond to the changing

regulatory environment.

EXTERNAL AUDITORS

TENURE

Deloitte were appointed by shareholders
as the Group’s Statutory Auditor in
2014 following a formal tender process.
The external audit contract will be put
out to tender at least every ten years.

The Committee recommend the
reappointment of Deloitte for 2016/17.
We believe the independence and
objectivity of the external auditor and
the eff ectiveness of the audit process
are safeguarded and remain strong.
The Company has complied with the
Statutory Audit Services Order for the
ﬁ nancial year under review.

The FRC’s Audit Quality Review (‘AQR’)
team selected to review the audit of the
Company’s 2014/15 ﬁ nancial statements
as part of their 2015 annual inspection of
audit ﬁ rms. The focus of the review and
their reporting is on identifying areas where
improvements are required rather than
highlighting areas performed to or above
the expected level. The Chairman of the
Audit Committee received a full copy of
the ﬁ ndings of the AQR team and has
discussed these with Deloitte. Whilst there
were no signiﬁ cant ﬁ ndings, some matters
were identiﬁ ed as requiring improvement
and we have agreed an action plan with
Deloitte to ensure the matters identiﬁ ed
by the AQR have been addressed in
the audit of the Company’s 2015/16
ﬁ nancial statements.

EFFECTIVENESS

The assessment of the eff ectiveness
of our external auditor is based on a
framework setting out the key areas of
the audit process for the Audit Committee
to consider, as well as the role that
management has contributed to an
eff ective process.

The framework provides the Audit
Committee with a mechanism to encourage
management to improve standards in a
number of key areas. These include ensuring

that information is presented with a culture
of ‘right ﬁ rst time’, that the quality of
management papers is high, that robust
internal systems and controls are
maintained, that the audit process is
respected and valued by the management
team, and that proposed audit adjustments
are examined seriously. The Committee
believes that this framework provides a
robust process for monitoring auditor
eff ectiveness, and can be measured against
the ﬁ ndings of future external auditor
eff ectiveness surveys. Looking forward,
the Committee will reassess the calendar
timing of the eff ectiveness review to ensure
maximum insight and effi ciency is gained
from the process.

The approach to the assessment is tailored
to enable senior management to answer
the detailed questions on the Company-
wide audit process, and provide the Audit
Committee with suffi cient detail to
establish an informed view on the overall
effi ciency, integrity and eff ectiveness of
the external audit.

Questionnaires were tailored to the
following target groups:

1. Chief Finance Offi cer and Director
of Group Financial Control: A full
questionnaire was completed, covering
all areas of the audit process, and in
consideration of the questionnaire
completed by the Heads of Finance for
Food, Clothing & Home and International.

2. Heads of Finance: Food, Clothing
and Home and International: Shorter
questionnaire, focusing on the audit team,
planning, challenge and interaction with
the business.

3. Audit Committee: A high level set
of questions with speciﬁ c focus on the
audit partner, planning, execution,
value, communication and challenge.
The Committee had access to copies of the
completed ﬁ nance questionnaires (sections
1 and 2 above) to assist their considerations.

WHAT WAS THE OUTCOME?

The results of the questionnaire were
examined, and feedback identiﬁ ed a good
understanding of the business and its
values, a joined-up approach towards
signiﬁ cant issues for discussion, and a
team that off er robust challenge and
technical insight. Areas for improvement
were identiﬁ ed in relation to better
communication during the audit, and
more business insights.

NON-AUDIT FEES

A robust auditor engagement policy
is in place and adhered to. It is
reviewed annually and disclosed on
marksandspencer.com/thecompany.

The business is committed to maintaining
non-audit fees at a low level, and can report
that the non-audit fees to audit fees ratio
for the year was 0.17:1, compared to 0.49:1
last year. Of the total non-audit fees of
£0.3m paid to Deloitte, £0.2m relates to
assurance services in relation to the Half
Year review, turnover certiﬁ cates, and EMTN
renewal. It is normal practice for such
assurance services to be provided by the
Company’s statutory auditor. A number
of smaller non-assurance services were
provided, including in relation to taxation
compliance in the International business,
and these amounted to £0.1m.

Where non-audit work is performed by
Deloitte, both the Company and Deloitte
ensure robust processes to prevent
auditor objectivity and independence
from being compromised.

All non-audit work performed by Deloitte
was put to the Audit Committee for
consideration and approval, regardless
of size.

Further details on non-audit services
provided by Deloitte can be found in
note 4 on page 96.

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44
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

ACCOUNTABILITY
AUDIT COMMITTEE REPORT CONTINUED

AUDIT COMMITTEE UPDATES

The Committee receives a detailed
update from the business at each
committee meeting, with one or more
areas represented. Business updates are
planned on a rolling 12-month basis and
reviewed at every meeting. Any matter
identiﬁ ed by internal audit as in need
of discussion is added to the agenda of
a future meeting. Some of the 2015/16
updates are listed below:

CASTLE DONINGTON DISTRIBUTION
CENTRE RESILIENCE

> Updated on Business Continuity,
including contingency options
and embedding the plan for
e-commerce fulﬁ lment.

> Discussed the triggers to the business
continuity action plan and the service
standards required to protect the
Company in the situation of a triggered
event, as well as consideration of
customer expectations.

> Discussed the link between Castle
Donington and store inventories.

CYBER SECURITY

> Updated on the cyber security measures
in place at M&S, and noted the proactive
approach adopted by the business.

> Discussed the protection around

customer data, including encryption
and regular reviews of the security
measures in place.

> Updated on the external review of the
company’s cyber security systems,
which were assessed against an
external framework, and considered
the proposed improvement plan.

> Agreed regular updates be provided

PROPERTY, FIRE, HEALTH, AND SAFETY

> Updated on the property Fire Health
and Safety Management (FHSM) Plan
which includes safety arrangements,
monitoring performance, and
performance targets.

> Discussed the management of electrical

safety and the policies and
arrangements in place.

> Updated on the improvements to

international governance, including
a third-party FHSM inspection plan, and
our global minimum standard for FHSM.

> Noted the continued partnership with
Birmingham City Council for Health
& Safety and the West Midlands
Fire Service for ﬁ re safety, as well as
partnerships with local NHS Ambulance
Trusts and emergency responders.

GROSS MARGIN AND
ETHICAL SOURCING

> Updated on the improvements in gross

margin and sourcing strategy, key drivers
to delivering the target growth in the
plan, and key areas of risk.

> Noted the internal risks and impacts of

external factors, including wage inﬂ ation
and currency volatility risk, and
discussed mitigating actions.

> Discussed supplier relationships and
changes to team structure within our
Sourcing Offi ces, leading to a change
in culture.

> Updated on the ethical trading

approach, including M&S standards and
auditing, noting independent ethical
audits undertaken by an accredited third
party on all factories used by M&S.

to the Committee throughout the year.

> Discussed the ethical compliance

BUSINESS CONTINUITY

> Updated on progress made in the

international business following the
implementation of several initiatives,
including the increased levels of crisis
management training.

> Discussed the current national threat
level, level of preparedness with the
introduction of shopping centre/retail
park preparedness assessments, and
key areas of improvement.

> Discussed the strategy and focus for
2016/17 which includes international
retail and sourcing, cyber security,
and global terrorism.

monitoring process, reporting structure,
and escalation procedures, and
improvements made in this area.

GOVERNANCE AND COMPLIANCE

> Updated on the improvements to the
whistleblowing policy, anti-bribery
policy, and Code of ethics and
behaviours, including stronger employee
awareness and compliance monitoring.

> Discussed and reviewed the process

undertaken by the Board to assess the
long-term viability of the business.

> Updated on international compliance,
and noted key risks and mitigating
actions, and the continued support
from Head Offi ce to the local teams.

SIGNIFICANT ISSUES

The Audit Committee has assessed whether
suitable accounting policies have been
adopted and whether management has made
appropriate judgements and estimates.

Throughout the year, the ﬁ nance team has
worked closely with Deloitte to ensure that
the business is transparent and provides the
required level of disclosure regarding signiﬁ cant
issues considered by the Committee in relation
to the ﬁ nancial statements, as well as how these
issues were addressed, whilst being mindful of
matters that may be business sensitive.

The main areas of judgement that have been
considered by the Committee to ensure that
appropriate rigour has been applied are
outlined in this section. All accounting policies
can be found in note 1 on pages 90-94.
Where further information is provided in the
notes to the ﬁ nancial statements, we have
included the note reference.

Each of the areas of judgement below has
been identiﬁ ed as an area of focus and
therefore the Committee has also received
detailed reporting from Deloitte.

IMPAIRMENT OF GOODWILL, BRANDS
TANGIBLE AND INTANGIBLE ASSETS

The Committee has considered the
assessments made in relation to the
impairment of goodwill, brands, tangible
and intangible ﬁ xed assets, including land
and buildings, store assets and software assets.
The Committee received detailed reports
from management outlining the treatment

FAIR, BALANCED AND UNDERSTANDABLE

At the request of the Board, the Committee has
considered whether, in its opinion, the 2015/16
Annual Report and Financial Statements is fair,
balanced and understandable, and whether it
provides the information necessary for
shareholders to assess the Group’s position
and performance, business model and strategy.

The structure of the report continues to
provide a strong focus on the key strategic
messages in the Strategic Report, whilst
ensuring these changes do not dilute the level
of transparency in disclosure that we know is
useful for stakeholders, and that the business
continues to provide a clear message that is
reﬂ ective of the Company as a whole.

A broad outline of the structure the Annual
Report was given to the Committee early in
the planning process, along with a similarly
broad indication of content. The Committee
received a full draft of the report some two
weeks prior to the meeting at which it would
be requested to provide its ﬁ nal opinion.
Feedback was provided by the Committee in
advance of that meeting, highlighting any areas
where the Committee believed further clarity
was required. The draft report was then

45
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

of impairments, valuation methodology, the
basis for key assumptions (discount rate and
long-term growth rate) and the key drivers of
the cash ﬂ ow forecasts. The Committee has
challenged management and is satisﬁ ed that
these are appropriate. The Committee has
also understood the sensitivity analysis used
by management in their review of goodwill
and brand impairment. In addition, the
business plans detailing management’s
expectations of future performance of the
businesses are considered by the Board.
The Committee is satisﬁ ed that appropriate
impairment of tangible and intangible assets
has been recognised.
See notes 5, 14 and 15
on pages 97, 98, 108 & 109

INVENTORY VALUATION AND
PROVISIONING

Inventory provisions include stock in transit,
obsolete stock, net realisable value below cost
and stock loss provisions. The Committee has
examined management papers outlining the
judgements made regarding provisioning for
inventory balances and is satisﬁ ed that a
suffi ciently robust process was followed to
conﬁ rm quantities of inventory and that net
realisable value of inventory exceeds its cost
at year end.

PRESENTATION OF THE FINANCIAL
STATEMENTS

The Committee gave consideration to the
presentation of the ﬁ nancial statements and
in particular the presentation of the non-

underlying measures in accordance with the
Group accounting policy. This policy states that
adjustments are only made to reported proﬁ t
before tax where income and charges are one-
off in nature, signiﬁ cant, and distort the Group’s
underlying performance. The Committee
received detailed reports from management
outlining the judgements applied in relation to
the disclosure of non-underlying items. In the
current year, management has included proﬁ t
on property disposal and impairments of
properties where commitment to close has
been demonstrated, restructuring costs,
signiﬁ cant and one-off impairment charges
and provisions, fair value movement of
ﬁ nancial instruments and the reduction in M&S
Bank income for the impact of the ﬁ nancial
product mis-selling provision within this
category. This was an area of focus for the
Committee in the current year due to the
number and value of these items (£200.8m
charge). In addition, the current year is a
53-week statutory reporting period so
consideration had been given to the balance
of 52-week and 53-week metrics reported
throughout the Annual Report. 52-week
measures have been quoted to ensure
meaningful comparison with last year’s
52-week period. Following detailed review
and active discussion with management the
Committee has concluded that the
presentation of non-underlying items and 52
and 53-week metrics throughout the Annual
Report and Financial Statements is appropriate.

See note 5 on p97

RETIREMENT BENEFITS

The Committee has reviewed the actuarial
assumptions such as discount rate, inﬂ ation
rate, expected return of scheme assets and
mortality which determine the pension cost
and the UK deﬁ ned beneﬁ t scheme valuation,
and has concluded that they are appropriate.
The assumptions have been disclosed in the
ﬁ nancial statements.

See note 11 on p102-105

REVENUE RECOGNITION IN RELATION TO
REFUNDS, GIFT CARDS AND LOYALTY
SCHEMES

Revenue accruals for sales returns and
deferred income in relation to loyalty scheme
redemptions and gift card and credit voucher
redemptions are estimated based on historical
returns and redemptions. The Committee has
considered the basis of these accruals, along
with analysis of historical returns and
redemption rates and has agreed with the
judgements reached by management.

SUPPLIER INCOME

This continues to be monitored closely by
management and robust controls are in place
to ensure appropriate recognition in the
correct period. The Committee are satisﬁ ed
with management’s conclusion that there is
no risk of material misstatement. Enhanced
disclosure has been made again in the current
year through publication of the accounting
policy and disclosing the eff ects of supplier
income on certain balance sheet accounts.

amended to incorporate this feedback prior
to being tabled at the Audit Committee
meeting for ﬁ nal comment and approval.

The Committee was provided with a list of the
key messages included in the Annual Report,
highlighting which were positive and which
were reﬂ ective of the challenges from the
year. A supporting document was also
provided speciﬁ cally addressing the following
listed points, highlighting where these could
be evidenced within the report.

When forming its opinion, the Committee
reﬂ ected on the information it had received
and its discussions throughout the year.
In particular, the Committee considered:

IS THE REPORT FAIR?

> Is the whole story presented and has any

sensitive material been omitted that should
have been included?

> Is the reporting on the business segments
in the narrative reporting consistent with
those used for the ﬁ nancial reporting in the
ﬁ nancial statements?

> Are the key messages in the narrative
reﬂ ected in the ﬁ nancial reporting?

> How do these compare with the risks that
Deloitte plan to include in their report?

> Are the KPIs disclosed at an appropriate
level based on the ﬁ nancial reporting?

IS THE REPORT BALANCED?

> Is there a good level of consistency

between the narrative reporting in the
front and the ﬁ nancial reporting in the back
of the report, and does the messaging
reﬂ ected in each remain consistent when
read independently of each other?

IS THE REPORT UNDERSTANDABLE?

> Is there a clear and understandable

framework to the report?

> Are the important messages highlighted
appropriately throughout the document?

> Is the layout clear with good linkage

throughout in a manner that reﬂ ects the
whole story?

> Is the Annual Report properly a document

CONCLUSION

for shareholders?

> Are the statutory and adjusted measures

explained clearly with appropriate
prominence?

> Are the key judgements referred to in

the narrative reporting and the signiﬁ cant
issues reported in this Audit Committee
Report consistent with the disclosures of
key estimation uncertainties and critical
judgements set out in the ﬁ nancial
statements?

Following its review, the Committee was
of the opinion that the 2016 Annual Report
and Accounts is representative of the
year and presents a fair, balanced and
understandable overview, providing the
necessary information for shareholders to
assess the Group’s position, performance,
business model and strategy.

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46
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

ACCOUNTABILITY
AUDIT COMMITTEE REPORT CONTINUED

ASSURANCE AND INTERNAL CONTROL ENVIRONMENT

The Board assumes ultimate responsibility
for the eff ective management of risk across
the Group, determining its risk appetite as
well as ensuring that each business area
implements appropriate internal controls.
The Group’s risk management systems are
designed to manage rather than eliminate
the risk of failure to achieve business
objectives, and can only provide reasonable
and not absolute assurance against
material misstatement or loss.

See p27-29 of the Strategic Report for more

information on our material risks.

See p47-48 for further information on our

risk management processes.

The key features of the Group’s internal
control and risk management systems
that ensure the accuracy and reliability of
ﬁ nancial reporting include clearly deﬁ ned
lines of accountability and delegation of
authority, policies and procedures that
cover ﬁ nancial planning and reporting,
preparing consolidated accounts, capital
expenditure, project governance and
information security, and the Group’s Code
of Ethics and Behaviours.

The Board has delegated responsibility for
reviewing the eff ectiveness of the Group’s
systems of internal control to the Audit
Committee. This covers all material controls
including ﬁ nancial, operational and
compliance controls and risk management
systems. The Committee is supported by
a number of sources of internal assurance
from within the Group in order to complete
these reviews, in particular:

1. Internal Audit The Group’s primary
source of internal assurance remains
delivery of the Internal Audit Plan, which is
structured to align with the Group’s
strategic priorities and key risks and is
developed by Internal Audit with input from
management. Recommendations from
Internal Audit are communicated to the
relevant business area for implementation
of appropriate corrective measures, with
results reported to the Committee.

2. Business Presentations Focusing
primarily on the key risks identiﬁ ed in the
Group Risk Proﬁ le, management continues
to provide updates to the Committee on
how these are managed in individual
business areas. These are complemented
by independent reviews conducted by
Internal Audit.

3. Other control agencies Responsible
for maintaining control over critical areas
of risk, the processes and controls of these
agencies are tested by Internal Audit & Risk
during relevant audits. An overview of these
agencies and the manner in which they
provide assurance to the Committee is
indicated in the table below.

The Group was compliant throughout
the year with the provisions of the UK
Corporate Governance Code relating to
internal controls and the FRC’s revised
Turnbull Guidance on Internal Control.
No signiﬁ cant failings or weaknesses were
identiﬁ ed during the Committee’s review in
respect of the year ended 2 April 2016 and
up to the date of this Annual Report.

Where the Committee identiﬁ ed areas
requiring improvement, processes are in
place to ensure that the necessary action
is taken and that progress is monitored.

Further details of these processes can
be found within our detailed Corporate
Governance Statement which is available to
view in the Corporate Governance section
of marksandspencer.com/thecompany.

Andy Halford
Audit Committee Chairman

INTERNAL ASSURANCE FRAMEWORK

Fire, Health
& Safety

COMMITTEES

Plan A*

Business
Continuity

ANNUAL UPDATE BY RELEVANT EXECUTIVE

Information
Security

Whistle blowing
& Fraud

REPORTS

GSCOP
(Grocery Supplier
Code of Practice)

ANNUAL PAPER

Bribery

Code of Ethics
and Behaviours

Food Safety & Integrity

Ethical Audits

OTHER CONTROL AGENCIES

Trading Safely & Legally

AUDIT TESTING BY INTERNAL AUDIT (AS APPROPRIATE)

* Reports directly to the Group Board.

Existing direct
line of reporting

Formal updates

Updates as
requested/
appropriate

AUDIT
COMMITTEE

47
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

ACCOUNTABILITY

RISK IN ACTION

RISK AND THE ROLE OF INTERNAL AUDIT

Internal Audit & Risk comprises both the
Group Risk function and Internal Audit.
Group Risk facilitates and manages the risk
process that is ultimately owned by the
Group Board. Internal Audit, accountable
to the Audit Committee, uses a risk-based
approach to provide independent
assurance over the adequacy and
eff ectiveness of the control environment,
including controls related to key risks on
the Group Risk Proﬁ le. The following
examples illustrate how Internal Audit
supports the business through driving
improvements to our control environment
and adding value in core business areas.

RISK: CLOTHING & HOME
TRANSFORMATION

Improving product availability to customers
in-store and online is a key priority and
Internal Audit reviewed the process to
allocate the stock available in our
warehouses. Our audit found opportunities
to improve the reconciliation of stock
data, to ensure that allocation decisions
are made based on the most current and
accurate stock data possible. We also found
that availability targets used within the

business are not wholly aligned with our
customers’ view of availability. These
challenges have led to manual intervention
in the allocation process, impacting the
effi ciency of operations. The audit ﬁ ndings
support the transformation activities
underway in Clothing & Home.

RISK: INTERNATIONAL

India is a key growth market for our
International business. Internal Audit
assessed the scalability of business
operations to support this growth, including
the clarity of plans to deliver against the
strategy, the adequacy of core logistics
processes and the management of new
store build and development projects.
We found the customer proposition to be
clearly deﬁ ned, with a range of store formats
trialled prior to wider rollout. New tools
and processes have been implemented
at the India warehouse to improve stock
management and capacity controls,
although product labelling enhancements
are required to speed up the movement of
stock through the warehouse. Robust project
management controls are in place over new
store build and development projects.

OUR APPROACH TO ASSESSING LONG-TERM VIABILITY

RISK: CLOTHING & HOME SUPPLY
CHAIN AND LOGISTICS NETWORK

In April 2016 we began the phased
implementation of a new automated
warehouse in Bradford, as part of our wider
supply chain and logistics transformation.
Internal Audit reviewed governance over
the project testing phase supporting this
launch, including the adequacy of testing
standards and the management of
test exceptions. Our audit found the
governance over testing to be robust;
however, there were opportunities to
improve record keeping relating to defect
management and to incorporate the
re-testing of changes into resource plans.
The audit recommendations were applied
to the remaining testing phases, ahead of
the warehouse launch.

Management actions from all of our audits
are tracked to completion and the status
of these actions is reported to the Audit
Committee to ensure that the risks
identiﬁ ed are appropriately addressed.
This will, in turn, further mitigate the risks
included in our Group Risk Proﬁ le.

As highlighted last year, the UK Corporate
Governance Code now requires us to issue
a ‘viability statement’ declaring whether
we believe the Company is able to continue
to operate and meet its liabilities, taking
into account its current position and
principal risks. The overriding aim is to
encourage directors to focus on the longer
term and be more actively involved in risk
management and internal controls; an
important part of stewardship. The Board
are required to assess the Company’s
viability over a period greater than 12
months. The M&S Board have selected a
three year assessment period as this aligns
with how we plan, measure performance,
and remunerate at a senior level.

The process adopted to assess the viability
of the Company involved collaborative
input from a number of functions across
the business to model a series of
theoretical ‘stress test’ scenarios linked to
the Group’s principal risks, in the context
of the three year plan. Examples include
signiﬁ cant interruption to our business as
a result of a cyber-attack or infrastructure

failure, and brand impacting incidents
driven by product sourcing failures.
Consideration was also given to the
strength of the control environment and
its impact in mitigating risk, as well as
inevitable interdependencies. Scenarios
were then reviewed against the Group’s
current and projected liquidity position,
considering current committed lending
facilities. To support the ﬁ nal conclusion
on viability, the assessment also took
account of additional potential mitigations
available to the business in the event of
further downside factors. An overview of
the process undertaken was provided to
the Audit Committee and reviewed for
completeness. The viability evaluation
was then provided to the Board to assist
in its assessment.

In assessing viability the Board has
considered a number of key factors,
including our business model (see page 10),
our strategy (see pages 6-8), risk appetite
(see page 48) and our principal risks and
uncertainties (see pages 28-29). These have
been reviewed in the context of our current

position and ﬁ nancial planning process,
speciﬁ cally the annual forecast and three
year plan. The directors also satisﬁ ed
themselves that they have the evidence
necessary to support the statement
in terms of the eff ectiveness of the
internal control environment in place
to mitigate risk.

In making the statement, the directors
have applied the following assumptions:

> Capital markets will be closed and any
bond maturing during the assessment
period will be reﬁ nanced through our
existing facility;

> Net capital investment will remain in

line with expectations; and

> In the event that the UK votes to leave
the European Union, the terms of exit
are such that the business would be able
to continue to operate broadly in line
with current operations.

The Board are in agreement that M&S is
a viable business. The Viability Statement
can be found on page 77.

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48
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

ACCOUNTABILITY
RISK IN ACTION CONTINUED

OUR APPROACH TO RISK APPETITE

The UK Corporate Governance Code
requires companies to deﬁ ne their risk
appetite in terms of the nature and extent
of the principal risks they are willing to take
in achieving strategic objectives. In real
terms it is an expression of the type and
amount of risk that the company is
prepared to take; by clearly deﬁ ning this
our business beneﬁ ts in a number of ways.
Not only does it promote consistent, risk-
informed decision-making across the
Group that is aligned with our strategic
aims, it also supports robust corporate
governance by setting clear risk-taking
boundaries.

Our approach to risk appetite has evolved
during 2015/16, building on the foundations
put in place last year. Following a review of
the draft statements prepared in 2014/15,
the Board have now agreed a set of Group-
level risk appetite statements that address
key risk areas and speciﬁ c business
operations; they are also designed to
support the business in its management of

RISK INTERDEPENDENCY

We recognise that there is signiﬁ cant
We recognise that there is signiﬁ cant
interdependency between our key risks.
interdependency between our key risks.
This diagram, based on an extract from
This diagram, based on an extract from our
our current Group Risk Proﬁ le, highlights
current Group Risk Proﬁ le, highlights how
how changes to one risk could impact on
changes to one risk could impact on those
those connected to it. By understanding
connected to it. By understanding the
the relationship between our key risks if
relationship between our key risks if they
they were to materialise, we are better
were to materialise, we are better placed to
placed to ensure that we are managing
ensure that we are managing them
them appropriately and to understand
appropriately and to understand our
our broader risk exposure.
broader risk exposure.

a number of principal risks. The statements
articulate the normal risk parameters within
which the Group operates; this is reﬂ ective
of the fact that our business is already
governed by robust policies and
procedures.

Our risk appetite statements cover a wide
range of topics from Clothing & Home
ethical sourcing and food safety and
integrity through to our core values and
behaviours. The size and diverse nature of
our business means that there is no ‘one
size ﬁ ts all’ approach to establishing risk
parameters. Whilst it is important that these
are clearly deﬁ ned, it is also essential that
we foster an environment where innovation
and entrepreneurial activities thrive. At
times there may be merit in operating
outside of agreed risk parameters but
proposed exceptions will need to be
escalated to senior management for
debate and approval before activities
commence, ensuring that appropriate
mitigating controls are in place.

Our work is ongoing. As the business
evolves during 2016/17 we will continue
to assess whether we have the right risk
appetite statements in place, and to
consider additional topics, including
emerging risks. We also plan to incorporate
our work on risk appetite into our existing
Group Risk process to promote consistent
consideration of risk and reward across the
Group.

EXAMPLE RISK APPETITE STATEMENT

Each agreed risk appetite statement is
designed to provide guidance on the
nature and extent of risk that the Group
is prepared to take in achieving its
strategic aims and operational objectives.
For example:

Food safety and integrity – We only
sell food products that meet our safety
and integrity Codes of Practice. This is
managed throughout the product
lifecycle, and assessed via our Food
Safety and Food Integrity audit
programmes.

The following is an illustrative example
The following is an illustrative example
of a potential scenario:
of a potential scenario:
In order to strengthen the performance
In order to strengthen the performance of
of our Clothing & Home business (1), both
our Clothing and Home business 1 , both
in the UK and internationally (10), we need
in the UK and Internationally 9 , we need to
to ensure we keep abreast of, and adapt
ensure we keep abreast of, and adapt to,
to, changing consumer behaviours (2).
changing consumer behaviours 2 . A
A critical part of this is ensuring that our
critical part of this is ensuring that our
customer proposition is well executed,
customer proposition is well executed,
including maximising product availability
including maximising product availability
and the speed of delivery to customers
and the speed of delivery to customers 4 ,
as well as guaranteeing the resilience of
our online business 10. We recognise that
business performance is also aff ected by

(4), as well as ensuring the resilience of our
external factors the causes of which are
online business (11). We recognise that
primarily out of our control. These include
business performance is also aff ected by
ﬂ uctuations in foreign exchange rates and
external factors, the causes of which are
the global economy E1 (encompassing
primarily out of our control. These include
uncertainties conferred by the upcoming
ﬂ uctuations in foreign exchange rates and
referendum on Britain’s membership of the
the global economy (E1) (encompassing
European Union E2), along with global
uncertainties conferred by the upcoming
socio-political unrest E3.
referendum on Britain’s membership of
the European Union (E2)), along with
global sociopolitical unrest (E3).

See Risk Management on p27-29

E2
Brexit

E3
Sociopolitical
unrest

E1
Foreign
exchange &
global
economy

1
Clothing &
Home
transformation

2
Changing
consumer
behaviours

11
M&S.com
business
resilience

10
International

4
Clothing &
Home supply
chain and
logistics
network

49
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

ENGAGEMENT

STAKEHOLDER
ENGAGEMENT

ROBERT SWANNELL CHAIRMAN

In my introduction on page 30 I touched on
the importance of having a clearly deﬁ ned
Board culture and ensuring that the way in
which the Board operates as a team is fully
integrated with our values. This is equally
important in determining the Board’s
approach to engaging with our investors,
as we believe that staying in touch with
them through regular, open dialogue and
candid debate forms the strong foundation
of this important relationship.

Inevitably, there will be areas in which our
views and those of our investors will
diverge. However, we ﬁ rmly believe that
encouraging points of diff erence to be
debated openly is a signiﬁ cant advantage,
helping us to understand the concerns of
our investors while framing the discussion
in the context of our wider business
objectives to ensure we are clear about
what we are trying to achieve.

We believe that our trusted relationship
with our shareholders is enhanced by our
commitment to staying in touch with them

AMANDA MELLOR GROUP SECRETARY

In addition to remaining in touch with our
investors, we also believe in utilising M&S’s
unique heritage and long history to engage
beyond this ‘traditional’ stakeholder group.
In last year’s Annual Report I highlighted
the innovative contributions towards this
from our acclaimed Company Archive in
Leeds, which I am pleased to say continued
its record of consistent excellence over
the course of the year.

During 2015 the archive continued to
improve the accessibility of its collection
through digitisation, adding a further 2,600
archives to its online catalogue. As a result,
the number of students, academics and
members of the public using the collection
for research purposes has increased by 61%.

The archive also broadened its award
winning education programme, partnering
with the Prince’s Trust to introduce
workshops to support children who have
been or are at risk of exclusion from school.
Alongside this direct work with schools,
the archive also expanded its successful
Heritage Ambassador Scheme to the South
London region in 2015. To date, these
Ambassadors have helped M&S stores to
connect with local schools by delivering
25 workshops focussing on the history of
M&S, Plan A and the environment to over
650 school children.

throughout the year and not just at our
AGM. During the year, the business had 431
contacts with 253 separately identiﬁ able
institutions via one-to-one or group
meetings hosted by an executive director
or our Investor Relations team. For my
part, I have had discussions on a variety
of governance matters with numerous
investors, industry representatives and
Chairs of other leading FTSE companies.
Additionally, in June I once again hosted
our annual Governance Event, details of
which are provided on the right.

We also stay in touch with the views and
opinions of our private investors by
engaging with a number of leading client
brokers who typically represent our private
shareholder base. Our Investor Relations
team receive independent guidance from
capital markets advisory ﬁ rm Makinson
Cowell, which undertakes an annual audit
of our major investors’ views on the
Company’s management and performance.
The results of its audit are presented to the
Board each year.

The archive has also excelled in developing
initiatives that draw from M&S’s heritage
to engage with communities on important
issues such as dementia support. It has
introduced reminiscence sessions for
groups visiting from care homes and day
centres, and in 2016 launched its own
monthly Memory Café in conjunction
with the Alzheimer’s Society. Additionally,
the archive off ers a range of digital
reminiscence resources for people living
with dementia, their families and carers,
utilising images and samples of products
from decades past to encourage social
interaction through the sharing of
experiences. Over 900 people to date have
been engaged through these reminiscence
sessions and digital resources, more
information about which is available at
marksintime.marksandpencer.com.

The work undertaken by the archive is
underpinned by our close partnership
with the University of Leeds, to which I am
proud to make my own contribution by
promoting the importance of ethical
leadership as a Visiting Professor of the
University’s Ethics Centre.

GOVERNANCE EVENT

The annual M&S Governance Event
is hosted by the Chairman, Robert
Swannell, and is attended by our Senior
Independent Director, Committee
Chairmen and senior representative(s)
of our Plan A department. Board
attendees in 2016 will be Vindi Banga
(Senior Independent Director and
Chairman of our Remuneration
Committee), Andy Halford (Chairman
of our Audit Committee), Amanda Mellor
(Group Secretary and Head of Corporate
Governance) and Adam Elman (our Head
of Global Plan A Delivery).

Invitations are sent to our 30 largest
shareholders, plus representatives
from inﬂ uential investor advisory ﬁ rms
and industry governance specialists.
The event is an opportunity to meet
and discuss the wide range of matters
considered by the Board, both
during the year and going forward.
Presentations at the meeting will
focus on the following six areas:

The Board

Audit

Risk

Remuneration Plan A Q&As

The presentation will be available to view
at marksandspencer.com/thecompany
following the event.

AGM

The 2016 AGM will be held at Wembley
Stadium in London on Tuesday 12 July at
11am. The Notice of Meeting sets out the
schedule for the day and the resolutions
to be proposed at the meeting. A copy
of the Notice can be downloaded at
marksandspencer.com/thecompany.
The meeting will be webcast live and
a recording made available on our
website after the event.

The Board and M&S’s senior management
team will be available for shareholders
to speak to before the meeting. Robert
Swannell and the Chairs of our
Committees will be available to answer
shareholders’ questions during the
formal proceedings of the meeting.

The AGM in 2015 was well-attended and
all of the proposed resolutions were
passed, with the percentage of the
Company’s share capital voted in favour
of each ranging from 89.34% to 99.99%.

See Shareholder information on p127-128

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50
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION

REMUNERATION
OVERVIEW

We are committed to fair and motivating remuneration;
and to creating value for our shareholders.

VINDI BANGA CHAIRMAN OF THE REMUNERATION COMMITTEE

On behalf of the Board, I am pleased to
present our Remuneration Report for 2016.
We have sought to improve our disclosures
further this year. As a result, we have
introduced a summary section highlighting
the key elements of our remuneration
framework. This ‘Remuneration at a Glance’
overview is intended to illustrate our
Remuneration Policy in action, the
alignment between our senior
remuneration strategy and the Company’s
performance for the 2015/16 ﬁ nancial year.

This year, we have also summarised the
Remuneration Policy approved by
shareholders at the 2014 AGM rather than
reproduce the Policy in full. This gives
an overview on the directors’ annual
remuneration framework.

BOARD CHANGES

As highlighted earlier, there were a
number of changes to the Board during
the year. Helen Weir joined us in April 2015,
John Dixon left in July 2015 and
Marc Bolland retired from the Board in
April 2016. I believe that our Remuneration
Policy provides the ﬂ exibility to manage
our pay arrangements while providing
certainty to our shareholders that any
payments made in the implementation
of our Policy are in the best interests of
both the Company and our shareholders.

After a rigorous selection process,
I am delighted that we appointed
Steve Rowe to succeed Marc Bolland
as Chief Executive Offi cer with eff ect
from 2 April 2016. The remuneration
arrangements relating to Steve in this
report cover his roles during the year;
as the Executive Director for Food and
later for GM. Steve’s remuneration as
Chief Executive Offi cer began after
the ﬁ nancial year-end. Full details for

Steve’s appointment were disclosed at the
time and are detailed later in this report on
page 68 with a starting salary in this role of
£810,000. In line with the provisions in
the Policy, the Committee intends that
Steve’s salary will be reviewed annually
reﬂ ecting performance and operational
delivery. The ﬁ rst review will be in July 2017,
15 months after his appointment.

PAY AND PERFORMANCE

The charts shown on pages 52 and 53
demonstrate the clear linkage between
M&S business strategy and payments
made to the executive directors.

The key business priorities are referenced
on pages 18 to 21 of this report and the
executive directors’ bonus measures
for the year were aligned with this focus.
In addition, each executive director was set
a number of strategic priorities which the
Committee considered relevant to the
delivery of the short- to medium-term
goals in their areas of responsibility.

Annual Bonus Scheme
As highlighted earlier, our performance
during the year was mixed. Overall
underlying proﬁ ts were up 3.5% with
strong cash ﬂ ow delivery. We delivered
positive Food growth in a tough market;
improved customer experience of
M&S.com, and progressed our end to
end Clothing & Home supply chain
infrastructure. In Clothing & Home,
margins improved but sales performance
was unsatisfactory. Our International
business was impacted by a number
of macro-economic factors and
operational challenges.

Bonus payments to the executive
directors were determined by the above
performance, as well as an evaluation of

individual performance against a number
of challenging targets and average around
35% of maximum (70% of salary).

Taking into account overall Company
performance and balance of the team,
the Committee determined that the
bonus for the CEO be subject to a
discretionary downward adjustment of
20% (from c.80% to c.64% of salary). Bonus
payments awarded to the executive team
are summarised on page 60. We are
satisﬁ ed that the payments to the CEO,
the executive directors and elsewhere in
the business are fair and balanced in the
context of overall Company performance.

Performance Share Plan
The Performance Share Plan awards
granted in 2013 were measured for the
three year period up to 2 April 2016 against
challenging EPS, ROCE and revenue targets.
As a result, executive directors will receive
only 4.8% of the original award when it vests
in June 2016. Full details are provided on
page 62.

SALARY INCREASES

While the Committee was minded to
award an annual increase of 2% of salary to
Patrick Bousquet-Chavanne, Helen Weir
and Laura Wade-Gery, all executive
directors have declined their respective
pay increases, in recognition of the new pay
arrangements proposed across the rest
of the UK business. All executive directors
have similarly stated that they will decline
their annual salary reviews in July 2017,
should the Committee deem it appropriate
to award any increases at that time. The
Committee are fully supportive of their
collective decision to support the business
in ensuring pay arrangements are
aff ordable and appropriate across M&S.

51
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

SUMMARY REMUNERATION POLICY p54

REMUNERATION REPORT p58

IN THIS SECTION
EXECUTIVE DIRECTORS’ REMUNERATION AT A GLANCE p52-53

Executive directors’
remuneration policy p54

Recruitment policy p55

Termination policy p56

Non-executive directors’
remuneration policy p57

Strategic alignment of pay p58

Performance Share Plan p62-63

Total single ﬁ gure remuneration p58

Directors’ share interests p64-66

Salary and beneﬁ ts p59

Non-executive directors’ remuneration p69

Annual Bonus Scheme p60-61

Remuneration Committee p70-71

LOOKING AHEAD

Looking ahead to 2016/17, remuneration
arrangements will be broadly in line with
2015/16 and will be aligned with the new
chapter and strategy being developed
for M&S. Incentives will support Steve’s
strategic direction for the business, his
clear focus on our customer, simplicity
and teamwork while running the business
proﬁ tability for our shareholders. Directors
will again be eligible to participate in an
Annual Bonus Scheme which for this
year will be focused on building solid
foundations of proﬁ t growth in the
business (70% of awards will be measured
against Underlying Group Proﬁ t Before
Tax targets). Individual performance will
continue to be relevant as we seek
improvements in a number of key areas
of priority which are necessary for the
future growth of M&S. This structure is
strongly aligned to the bonus scheme
arrangements in place for the wider
workforce, which was a consideration in
the Committee’s discussions.

Further Committee debates for incentive
schemes for 2016/17 were related to the
appropriateness of performance measures
and targets for long-term incentive
arrangements under Steve Rowe’s new
leadership. Considerable work is currently
underway to review and redeﬁ ne our
long-term goals and the Committee
wishes to ensure that the Performance
Share Plan is aligned to this strategic review.
The Committee believes it is vital that the
performance targets in the Performance
Share Plan are not only aligned to these
goals but are motivational for participants.
As a result, the Committee decided that
awards under the Performance Share Plan

will be granted in November 2016, shortly
after the announcement of the Interim
results. This will ensure that we can set
stretching yet achievable targets which
are within the approved Remuneration
Policy and designed to deliver increased
shareholder value.

This will be the ﬁ nal year under the
current remuneration framework as
we will be seeking your support and
approval for a new Remuneration Policy
at the 2017 AGM. We are committed to
ensuring that the executive directors’
pay arrangements support and drive
the business strategy and are balanced
between motivating and challenging
our senior leaders to grow the business and
deliver value to shareholders.

We will be supported by our Committee
advisors in setting the new Remuneration
Policy to ensure that it aligns with the

REMUNERATION COMMITTEE

business drivers and goals to deliver strong
performance and sustainable shareholder
returns. We will seek to engage with our
major shareholders as part of this process
to reﬂ ect their views and to maintain
our ongoing dialogue on director pay
arrangements. Together with the rest of the
Board, I look forward to hearing your views
on our remuneration arrangements and will
be available to answer any questions you
may have at the AGM.

Vindi Banga
Chairman of the Remuneration Committee

The following independent non-executive directors were members of the Committee
during 2015/16:

MEMBER
SINCE

MAXIMUM
POSSIBLE
MEETINGS

NUMBER OF
MEETINGS
ATTENDED

% OF
MEETINGS
ATTENDED

MEMBER

Vindi Banga
(Chairman)

1 September 2011

Robert Swannell

1 March 2015

Miranda Curtis

1 February 2012

Richard Solomons

21 July 2015

100

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52
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

EXECUTIVE REMUNERATION 2015/16

REMUNERATION
AT A GLANCE

This overview summarises our Policy in action and
shows the alignment between our remuneration
framework, the Company’s performance and
payments to directors for 2015/16.

STRATEGIC PAY ALIGNMENT 2015/16

See more on p58

The table below shows the integration
between M&S’s ﬁ nancial key performance
indicators as shown on page 18 and the
senior remuneration framework for 2015/16.

This clearly demonstrates a strong linkage
between performance metrics, payments
to directors and business performance over
the short- and long-term.

Further details of the alignment with
non-ﬁ nancial and strategic measures
are set out in the table on page 58.

KPI

Incentive scheme

Impact on incentive payment for 2015/16

Group Revenue

Performance
Share Plan

Multi-channel revenue was the only metric above threshold target for the
year resulting in 4.8% vesting of PSP awards under this element.

Underlying Group
Proﬁ t Before Tax (PBT)

Annual Bonus Scheme Underlying Group PBT for the year was £684.1m, and above the target set
for bonus payments to begin. For executive directors, 5.9% of bonus was
payable as a result of 2015/16 PBT results.

Return on Capital
Employed (ROCE)

Performance
Share Plan

Average three-year ROCE performance of 14.7% (which included 15.0%
achievement for 2015/16) was below the threshold required for this element
of the PSP to vest.

Underlying Earnings
per Share (EPS)

Performance
Share Plan

EPS growth was 2.9% over the three years ending in 2015/16 (based on an
outturn of 34.8p for this year) and was below the 5% growth required for
vesting under the PSP.

Free cash ﬂ ow1

Annual Bonus Scheme Free cash ﬂ ow performance for the year was above the maximum target.

The Committee felt it appropriate to adjust downwards the outturn for
bonus purposes as a result of items such as project delays resulting in an
achievement of 18.2% of bonus.

1. Pre shareholder returns and pre acquisition of subsidiary.

See full Strategic alignment of pay on p58

SINGLE FIGURE REMUNERATION 2015/16

The graph opposite summarises the total
payments made to executive directors
in respect of the 2015/16 ﬁ nancial year.
These ﬁ gures illustrate those detailed in
the single ﬁ gure table later in this report.

Fixed pay comprises salary, beneﬁ ts and
pension beneﬁ ts. Further information on
payments made under the Annual Bonus
Scheme and Performance Share Plan as a
result of one- and three-year performance
respectively is illustrated on page 53, with
full detail provided later in this report.

See more on Single Figure Remuneration

on p58

Marc
Bolland

Patrick
Bousquet-Chavanne

Steve
Rowe

Laura
Wade-Gery

Helen
Weir

See more on p58

Total
£000

£622

£128

£2,039

£1,130

£1,019

£821

£1,566

£1,289

£714

£720

£366

£50

£230

£69

£542

£207

£72

£946

£620

Fixed pay

Total bonus

Total PSP vested

See Annual Bonus Scheme on p53 & p60-61

See PSP on p53 & p62-63

53
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

KEY PERFORMANCE MEASURES

GROUP REVENUE

UNDERLYING PBT

RETURN ON CAPITAL
EMPLOYED

EARNINGS PER SHARE

£10.4bn

£684.1m

15.0%

34.8p

FREE CASH FLOW
(PRE SHAREHOLDER
RETURNS)

£539.3m

ALIGNED TO REMUNERATION

Performance Share Plan (PSP)

Annual Bonus Scheme

ANNUAL BONUS SCHEME 2015/16

Bonus payments made in respect of
performance for the year were between
21% and 53% of maximum bonus
opportunity. This resulted in payments
ranging from £207,000 to £622,000 with
half of all amounts being deferred into
shares for three years, subject to malus
provisions being met.

Further detail of the performance targets
and the extent to which each were achieved
are shown on page 60 of this report.

Corporate element

(max 60%)

Individual element (max 40%)

See more on p60-61

Marc Bolland

15.9%

16.0%

Patrick Bousquet-Chavanne

5.9%

Steve Rowe

10.7%

10.0%

Laura Wade-Gery

5.9%

27.6%

33.6%

28.4%

See more on Annual Bonus Scheme on p60

Helen Weir

24.1%

Maximum bonus possible

Actual bonus earned

PERFORMANCE SHARE PLAN (PSP) 2015/16

See more on p62-63

PSP performance weighting

EPS
Maximum possible
Actual performance

ROCE
Maximum possible
Actual performance

Revenue*
Maximum possible
Actual performance

*Weighting (by revenue source)
UK
International
Multi-channel

50%
0%

20%
0%

30%
4.8%

10%
10%
10%

0 %

U E 3

N
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V
E
R
*

E 20%

The chart opposite illustrates the results
of the three-year performance against
the PSP targets which were set in 2013.
Awards will vest in June 2016, with an
estimated vesting value detailed in the
single ﬁ gure table.

EPS weighting/performance
Three-year EPS growth of 2.9% was below
the 5% required for threshold vesting.

ROCE weighting/performance
Average ROCE over the last three years
was 14.7%, below the 15.0% required for
this element of the award to vest.

Revenue weighting/performance
As a result of 2015/16 Multi-Channel
revenue performance, 4.8% of awards
will vest. Other revenue measures were
not met, meaning these elements of the
award will lapse.

See more on Performance Share Plan

on p62

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54
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION

SUMMARY
REMUNERATION POLICY

This report sets out a summary of
M&S’s policy on remuneration for
executive and non-executive directors.
The Policy in full was approved by
shareholders at the AGM on 8 July 2014

and can be found on our website at
marksandspencer.com/thecompany.
The Policy took eff ect from this date and
may operate for up to three years.

The Policy remains to attract, retain and
motivate our leaders and ensure they are
focused on delivering business priorities
within a framework designed to promote
the long-term success of M&S, aligned with
our shareholders’ interests.

SUMMARY EXECUTIVE DIRECTORS’ REMUNERATION POLICY (AS APPROVED ON 8 JULY 2014)

FIGURE 1: SUMMARY EXECUTIVE DIRECTORS’ REMUNERATION POLICY TABLE

ELEMENT

OPERATION

Base salary

Salaries are reviewed annually by the Committee, considering a number of factors, including:
> Salary increases in the wider M&S workforce.
> The experience, responsibility and contribution of the individual.
> Salaries for comparable roles in appropriate comparator groups

(such as major retailers and our peer group of FTSE 25-75 companies).

Beneﬁ ts

In line with our policies, executive directors are eligible to receive beneﬁ ts which may include:
> A car or cash allowance and a driver.
> Life assurance.
> Relocation and tax equalisation allowances in line with our mobility policies.
As with all employees, directors are also off ered other beneﬁ ts including:
> Employee discount.
> Salary sacriﬁ ce schemes.
> Participation in our all-employee share schemes.

OPPORTUNITY

Annual increases are normally in line
with those in the wider workforce,
although no maximum is set.

Individual adjustments may be made
in appropriate circumstances (e.g.
where the role scope has changed
or as part of salary progression for
newly-appointed directors).

There is no set maximum,
however any provision will be
commensurate with local markets
and for all-employee shares
schemes, the local statutory limits.

Pension
beneﬁ ts

Executive directors may choose to:
> Participate in our deﬁ ned contribution pension scheme; or
> Receive cash payments in lieu of pension contributions.
The deﬁ ned beneﬁ t pension scheme is closed to new members. Directors who are members
of this scheme will continue to accrue beneﬁ ts.

A maximum of 25% of salary
for executive directors (30% for
the CEO).

Annual Bonus
Scheme
including
Deferred Share
Bonus Plan
(DSBP)

All directors are eligible to participate in the Annual Bonus Scheme, which is a discretionary,
non-contractual scheme. Performance is measured against quantiﬁ able one-year ﬁ nancial
and individual performance targets linked with the sustainable delivery of our business plan.
Targets are set at the start of the year and approved by the Remuneration Committee. At least
half of awards are measured against ﬁ nancial measures which typically includes Underlying
Group Proﬁ t Before Tax (PBT).

Corporate and individual elements may be earned independently, but no part of the
individual objectives may be earned unless a ‘threshold’ level of PBT has been achieved.
For threshold performance, up to 40% of maximum may be payable for the achievement
of individual objectives.

At least half of any bonus earned is paid in shares which are deferred for three years. The value
of any dividends during the deferral period will be payable.

The Committee can, in circumstances it believes appropriate, reduce to zero unvested deferred
share awards. In certain circumstances, the Committee can also reclaim all or part of the cash
bonus for up to three years after the payment date, for payments made after July 2015.

Total maximum annual bonus
opportunity is capped at 200% of
salary for each executive director.

Performance
Share Plan
(PSP)

To encourage long-term shareholding, to retain directors and to provide greater alignment
with shareholders’ interests, all directors are eligible to participate in the Performance Share
Plan. This is a non-contractual, discretionary scheme and is M&S’s main long-term incentive
scheme. Performance is measured against a balanced scorecard of three-year ﬁ nancial
measures set prior to grant. Measures currently include Earnings per Share (EPS) and Return
on Capital Employed (ROCE).

The value of any dividends during the vesting period will be payable.

The Committee can, in circumstances it believes appropriate, reduce to zero unvested PSP
awards. In addition, the Committee can, for awards made after June 2015, reclaim all or part
of vested awards for up to two years after the vesting date in certain speciﬁ ed circumstances.

The maximum annual value
of shares at grant is capped at
300% of salary for each
executive director.

55
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

FIND OUT MORE

See Remuneration Report p58

See our Strategy p06-08

See our KPIs p18-21

Read our full Remuneration Policy at www.marksandspencer.com/thecompany

EXECUTIVE DIRECTORS’ REMUNERATION POLICY CONTINUED

FIGURE 2: RECRUITMENT POLICY & SERVICE CONTRACTS

The table below summarises the Company’s policy on the recruitment of new executive directors. Similar considerations may also apply
where a director is promoted within the Board.

ELEMENT

APPROACH

Service
contract

> All executive directors have rolling contracts for service which may be terminated by M&S giving 12 months’ notice and the

individual giving six months’ notice.

Base salary

> Salaries are set by the Committee, taking into consideration a number of factors including the current pay for other executive

directors, the experience, skill and current pay level of the individual and external market forces.

> The Committee may choose to set the salary below that of the market or the other directors with the intention of applying

staged increases.

Beneﬁ ts

Pension
beneﬁ ts

Annual Bonus
Scheme

> The Committee will off er a beneﬁ ts package in line with our beneﬁ ts policy for executive directors. The beneﬁ ts provided will

appropriately reﬂ ect the individual’s circumstances.

> Maximum contribution in line with our Policy.

> Maximum bonus potential will be capped at 200% of salary in line with our Policy.

PSP

> Maximum award of up to 300% of salary in line with our Policy.

Buy-out
awards

> The Committee may off er compensatory payments or buy-out awards where an individual forfeits outstanding variable pay

opportunities or contractual rights as a result of their appointment with M&S.

> The speciﬁ cs of any buy-out awards would be dependent on the individual circumstances of recruitment and would be determined
on a case-by-case basis. On assessing such awards, the Committee will seek to make awards on a like-for-like basis to ensure that
the value awarded would be no greater than the value forfeited by the individual. The Committee may choose to apply performance
conditions to these awards.

In addition, the Committee in exceptional
circumstances has discretion to include any
other remuneration component or award
which it feels is appropriate, taking into
account the speciﬁc circumstances of the

individual, subject to the limit on variable
remuneration set out above. The rationale
for any such component would be
appropriately disclosed. For example,
for internal promotional appointments

to the Board, the Committee would honour
any pre-existing contractual remuneration
arrangements which may be outside of the
standard policy summarised on page 54.

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MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION POLICY
CONTINUED

EXECUTIVE DIRECTORS’ REMUNERATION POLICY CONTINUED

TERMINATION POLICY

The Company may choose to terminate the
contract of any executive director in line
with the terms of their service agreement
either by means of a payment in lieu of
notice or through a series of phased
payments. Service agreements may be
terminated without notice and without
payments in certain circumstances, such
as gross misconduct.

The Company’s policy toward exit
payments allows for a variety of

circumstances whereby a director may
leave the business. In all circumstances,
the Committee does not intend to ‘reward
failure’ and will make decisions based on
the individual circumstances ensuring they
are in the best interests of the Company
and shareholders at that time, and reﬂect
the director’s contractual and other
legal rights.

The table below summarises our
termination policy for executive directors
under their service agreement and the
incentive plan rules.

The full Policy sets out further detail
on the treatment of the executive
directors’ pay arrangements, including the
treatment of share schemes in the event
of a change of control or winding-up of the
Company and some legacy long-term
incentive plans which the Company
operates. No current executive director
holds unexercised awards under these
legacy plans.

FIGURE 3: TERMINATION POLICY

ELEMENT

APPROACH

Base salary,
beneﬁ ts and
pension
beneﬁ ts

Annual Bonus
Scheme

Long-term
incentive
awards

> Payment made up to the termination date.

> There is no contractual entitlement to a bonus payment. If the director is under notice or not in active service at either the end
of the bonus year or on the payment date, awards (and any unvested deferred bonus shares) may lapse. The Committee may,
however, use its discretion to make a bonus award, typically pro-rated for time and based on the performance assessed at the
end of the bonus year.

> The treatment of outstanding share awards is determined in the accordance with the respective plan rules.
> Where a director leaves in certain circumstances, for performance share awards held for at least 12 months, awards typically
vest at the end of the relevant performance period (to the extent to which any performance conditions are met) and are
pro-rated for time. The plan rules allow for the Committee to permit these awards to vest at the time the director leaves and
to not apply time pro-rating.

Repatriation

> M&S may pay for repatriation where a director has been recruited from overseas.

Legal
expenses &
outplacement

> Where a director leaves by mutual consent, M&S may reimburse for reasonable legal fees and pay for professional

outplacement services.

CONSIDERATION OF WIDER WORKFORCE PAY & SHAREHOLDER VIEWS

The Committee monitors and reviews the
eff ectiveness of the senior remuneration
policy and has regard to its impact and
compatibility with remuneration policies
in the wider workforce. Throughout the year
the Committee is provided with information
and context on pay in the wider workforce
to enable its decision-making. This includes
the approach for UK pay review, the total
annual bonus cost budget and PSP awards
to be made to directors below the Board.

The Committee receives updates on a
variety of employee engagement initiatives
including our annual ‘Your Say’ employee
survey which asks employees about the
fairness and reasonableness of employee
pay and beneﬁts. Employee representatives
in our Business Involvement Groups are
annually provided with an explanation of
the executive directors’ pay arrangements
during the year, and are able to ask
questions on the arrangements and their
ﬁ t with the other reward polices at this time.

The Committee is committed to an open
and transparent dialogue with its
shareholders. The Committee annually
engages in a process of investor
consultation, which is typically in written
format. Where appropriate, the Committee
will actively engage with shareholders and
shareholder representative bodies, seeking
views which may be taken into account
when making any decisions about changes
to the directors’ Remuneration Policy.

The Committee Chairman is available to
answer questions at the Annual General
Meeting (AGM) and the answers to speciﬁc
questions are posted on our website.

57
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

SUMMARY NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY (AS APPROVED ON 8 JULY 2014)

The table below summarises our Policy for the operation of non-executive director fees and beneﬁts at the Company.

FIGURE 4: SUMMARY NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY TABLE

ELEMENT

OPERATION AND OPPORTUNITY

Service
agreements

Chairman’s
fees

Non-executive
director
basic fee

> All non-executive directors have an agreement for an initial three-year term. The Chairman’s agreement requires six months’

notice by either party. The non-executive directors’ agreements may be terminated by either party giving three months’ notice.

> Fees are reviewed annually by the Committee taking into consideration:
– Time commitment, demands and responsibility of the role.

– External market practice.
> The maximum aggregate fees for the Chairman and non-executive directors is £750,000 p.a. as set out in our Articles

of Association.

> Fees are reviewed annually by the executive directors taking into consideration:
– Time commitment, scope and responsibility of the role.

– External market practice.
> The maximum aggregate fees for the non-executive directors, including the Chairman’s fee, is £750,000 p.a. as set out in our

Articles of Association.

Additional fees

> Additional fees are paid for undertaking the extra responsibilities of:
– Board Chairman.

– Senior Independent Director.

– Committee Chairman.

Beneﬁ ts

Recruitment

> In line with our other employees, the Chairman and non-executive directors are entitled to receive employee discount.
> The Chairman is also entitled to the use of a car and driver.
> No further beneﬁ ts are provided to the Chairman or non-executive directors.

> The Committee takes into account a number of factors when determining an appropriate fee level for the Chairman. The CEO and
executive directors determine appropriate fee levels for the non-executive directors and take into account the time commitment,
role responsibility and market practice in our comparator groups when doing so.

> M&S may off er beneﬁ ts to the Chairman in line with our Policy.

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58
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

GOVERNANCE

REMUNERATION REPORT

EXECUTIVE DIRECTORS’ REMUNERATION

The Remuneration Committee annually
reviews the senior remuneration
framework and considers whether the
existing incentive arrangements remain
appropriately challenging in the context
of the business strategy, current external
guidelines and a range of internal factors

including the Remuneration Policy and pay
arrangements throughout the rest of the
organisation. The table below shows the
performance measures used in current
incentive schemes and how these align with
the key performance indicators detailed on
pages 18 to 21. As shown, there is a strong

linkage between the key performance
indicators which are integrated in to the
directors’ incentive schemes. This ensures
that directors are clearly aligned and
motivated to deliver the strategy.

FIGURE 8: STRATEGIC ALIGNMENT OF PAY

See KPIs on p18-21

FINANCIAL OBJECTIVES

Grow Group revenue

KPI

Group Revenue

INCENTIVE SCHEME

PSP

Increase earnings and returns

Underlying Group Proﬁ t Before Tax (PBT)

Annual Bonus Scheme

Return on Capital Employed (ROCE)

Underlying Earnings per Share (EPS)

PSP

Strong cash generation

NON-FINANCIAL OBJECTIVES

Free cash ﬂ ow

KPI

Foster a skilled, motivated and engaged team

M&S Values

Source products with integrity

Effi cient and responsible operations

LONG TERM STRATEGIC OBJECTIVES

Driving growth

Reaching customers

Improving proﬁ tability

Plan A

KPI

Annual Bonus Scheme & PSP

INCENTIVE SCHEME

Annual Bonus Scheme

INCENTIVE SCHEME

Sales revenue

Annual Bonus Scheme & PSP

Sales growth and online visits

Annual Bonus Scheme

Gross margin/operating proﬁ t

Annual Bonus Scheme & PSP

FIGURE 9: TOTAL SINGLE FIGURE REMUNERATION (audited)

Director

Marc Bolland

Patrick Bousquet-Chavanne

John Dixon1

Steve Rowe

Laura Wade-Gery2

Helen Weir

Year

2015/16
2014/15
2015/16
2014/15
2015/16
2014/15
2015/16
2014/15
2015/16
2014/15
2015/16
2014/15

Salary

Beneﬁ ts3

£000

Total
Bonus4
£000

Total PSP
vested5
£000

Pension
beneﬁ ts6
£000

975
975
541
525
177
600
549
525
383
552
590
–

21
19
38
36
7
25
34
42
18
21
208
–

622
596
366
222
0
217
230
653
207
219
620
–

128
212
50
60
0
122
69
66
72
118
0
–

293
293
135
131
44
150
137
131
141
138
148
–

Total

£000

2,039

2,095
1,130
974
228
1,114
1,019
1,417
821
1,048
1,566
–

1. The amounts shown for 2015/16 reﬂ ect that John Dixon resigned from the Board on 16 July 2015.
2. The amounts shown for 2015/16 for Laura Wade-Gery take into account the period of maternity leave taken from 22 August 2015, calculated in line with the Company’s relevant policies.
3. Beneﬁ ts include the value of car allowance and intrinsic value of SAYE in addition to the taxable value of car, driver and life assurance, as applicable to each director and as described
on page 59. As disclosed in last year’s report, for Helen Weir, beneﬁ ts also include £188,500, the diff erential value in contractual pension she forfeited to join M&S. This was paid in
12 equal instalments.

4. Half of any award will be deferred into Company shares for a period of three years. Further details of the 2015/16 Annual Bonus Scheme are shown on page 60.
5. The value of awards vesting in 2014/15 has been restated to reﬂ ect the actual value of dividend equivalents and share price at the time of vesting. The value of awards vesting in 2015/16
has been estimated based on the three-month average share price from 4 January 2016 – 1 April 2016 as these awards do not vest until after the end of the ﬁ nancial year. This value also
includes the anticipated value of dividend equivalents which will be payable in July 2016. These estimated ﬁ gures will be restated in next year’s report.

6. Pension beneﬁ ts comprise the value of cash provided in lieu of participation in an M&S pension scheme.

59
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

The following sections detail additional disclosure regarding each of the components set out in the previous ‘single ﬁgure’ table.
Targets and the resultant outturn under the Annual Bonus Scheme and Performance Share Plan are measured on a 52 week basis.

SALARY (audited)

When reviewing salary levels, the Committee
takes into account a number of internal
and external factors, including Company
performance during the year, external
market data and the salary review principles
applied to the rest of the organisation to
ensure a consistent approach.

review in July 2016. The Committee was
minded to award an annual increase of 2%
of salary to Patrick Bousquet-Chavanne,
Laura Wade-Gery and Helen Weir. This
increase is in line with the average pay
increase for the rest of the organisation,
eff ective July 2016.

As reported last year, salary increases,
where awarded, were between 2% and 6%
in recognition of the change in pay review
date, and the individual performance of
each executive director. These pay
increases took eff ect from 1 July 2015.
The average pay increase for the executive
directors was 3.0%, in line with the average
increase awarded to the wider UK workforce
over the same 18-month period.

During the year, the Committee discussed
the executive directors’ annual salary
review for all executive directors eligible for
review. Steve Rowe was not eligible for a pay

All executive directors have declined their
respective pay increases in recognition
and support of the proposed new pay

FIGURE 10: SALARIES

Steve Rowe1
Patrick Bousquet-Chavanne
Laura Wade-Gery
Helen Weir

arrangements being made elsewhere in
the UK organisation. Further, they have also
indicated an intention to similarly decline
their increases in July 2017, should the
Committee deem it appropriate to award
any such increase.

The table below details the executive
directors’ salaries as at 2 April 2016
and salaries which will take eff ect from
1 July 2016.

Annual salary
as of
2nd April 2016
£000

Annual salary
as of
1st July 2016
£000

Change
in salary
% increase

557
546
569
590

810
546
569
590

45.4
0
0
0

1. The ﬁ gure for Steve Rowe for 1 July 2016 reﬂ ects his appointment to CEO in April 2016.

BENEFITS (audited)

PENSION BENEFITS (audited)

Each executive director receives a car or
cash allowance and is off ered the beneﬁt
of a driver. The Company also provides
each director with life assurance. Executive
directors receive employee product
discount and are eligible to participate
in salary sacriﬁce schemes such as
Cycle2Work in line with all other employees.

Executive directors currently all receive
a 25% salary supplement in lieu of
participation in an M&S pension scheme.
Marc Bolland received a supplement of
30% of salary.

Steve Rowe and John Dixon are deferred
members of the Marks & Spencer UK
Pension Scheme. Details of the pension
accrued during the year ended 2 April 2016
are shown below.

FIGURE 11: PENSION BENEFITS

Accrued
pension
entitlement
as at
year end1
£000

Additional
value
on early
retirement
£000

Increase
in accrued
value
£000

Normal
retirement
age

138

147

Increase
in accrued
value
(net of
inﬂation)
£000

Transfer
value of
total
accrued
pension
£000

3,515

3,759

John Dixon

Steve Rowe

1. The accrued pension entitlement is the deferred pension amount that the director would receive at age 60 if they left
the Company on 2 April 2016. All transfer values have been calculated on the basis of actuarial advice in accordance
with the current Transfer Value Regulations. The transfer values of the accrued entitlement represent the value of the
assets that the pension scheme would transfer to another pension provider on transferring the scheme’s liability in
respect of the director’s pension beneﬁ ts. They do not represent sums payable to the director and therefore cannot be
added meaningfully to annual remuneration.

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60
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION REPORT
CONTINUED

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

ANNUAL BONUS SCHEME

ANNUAL BONUS SCHEME 2015/16 (audited)

Annual performance for 2015/16 was
measured against Underlying PBT (30% of
awards) and either business unit operating
proﬁ t for trading directors or free cash ﬂ ow
for the CEO and CFO (30% of awards).

Individual performance accounted for
40% of bonus opportunity, with objectives
aligned to the relevant key strategic
business priorities. Figure 12 provides
an overview of the key achievements
against objectives.

Steve Rowe’s measures were amended to
reﬂ ect his change in accountabilities in
July 2015 from Food to Clothing & Home.
His pro-rated performance for each
business area is reﬂ ected in his ﬁ nal
bonus payment.

Underlying PBT outturn was £684m which
was above the £680m target set to trigger
payments under both the corporate and
individual elements of the Scheme.

The Committee reviewed all of the bonus
outcomes in the context of the Company’s
overall performance and quality of
earnings. With regard to free cash ﬂ ow, the
Committee judged it appropriate to adjust
downwards the actual bonus outturn ﬁ gure
to reﬂ ect certain items such as project
delays which the Committee felt should
not be reﬂ ected in the bonus payment.
As a result, payments under this element
were 18.2% of bonus as shown in Figure 13.

The Committee also reviewed achievement
to ensure that total payments were
appropriate in the context of M&S’s overall
performance and outturn of individual
objectives. Taking into account overall
Company performance and balance of
the team, the Committee determined
that the bonus for the CEO be subject
to a discretionary downward adjustment
of 20% (from c. 80% to c. 64% of salary).
Bonus payments awarded to the executive
team are shown below. We are satisﬁ ed that
the payments to the CEO, the executive
directors and elsewhere in the business are
fair and balanced in the context of overall
Company performance.

Success towards Plan A targets and M&S
Values underpinned the entire Scheme.
The Committee was satisﬁ ed that each

director continued to ensure that Plan A
and leadership in embedding M&S’s cultural
values remained a major focus of the ways
of working and that the performance
supported this.

See Plan A Report for more detail.

The Committee ensures that targets set
are the relevant drivers of required annual
performance. Some of the 2015/16 targets
are too commercially sensitive to disclose
as they are not disclosed elsewhere in
this report. M&S remains committed to
transparent reporting within the context of
operating in a highly-competitive market.
The Committee will continue to assess the
commercial sensitivity of targets with the
aim to disclose wherever possible, while
ensuring that any measures set are those
most appropriate to grow the business.

FIGURE 12: KEY ACHIEVEMENTS OF INDIVIDUAL OBJECTIVES 2015/16

Marc Bolland

Continued improvement in UK Food sales and embedding
‘Fit To Lead The Future’ through talent development and recognition

Patrick Bousquet-Chavanne Successful launch of ‘Sparks’ and inspirational marketing

campaigns to drive store and online footfall

Steve Rowe

Laura Wade-Gery

Helen Weir

Continued improvement in UK Food sales and driving
change in Clothing & Home

Signiﬁ cant improvements in the stability and performance of
Donington and increased customer satisfaction in stores and online

Robust control of business costs and successful delivery of
Clothing & Home supply change transformation project

FIGURE 13: ANNUAL BONUS SCHEME 2015/16

UNDERLYING
GROUP PBT

CORPORATE
TARGETS

FREE CASH FLOW2

BUSINESS
UNIT PROFIT

INDIVIDUAL
OBJECTIVES

TOTAL
PAYMENT

Target/performance Achievement

Performance Achievement

Director

Marc
Bolland

Min
£m

Max
£m

Actual
£m

% max
bonus

Min
£m

Max
£m

Actual
£m

% max
bonus

680 735 684

5.9

489 589 546

18.2

–

Patrick
Bousquet-Chavanne

680 735 684

5.9

680 735 684

5.9

680 735 684

5.9

–

680 735 684

5.9

489 589 546

18.2

–

Steve
Rowe

Laura
Wade-Gery1

Helen
Weir

% max
bonus

–

0.0

4.8

0.0

–

% max
bonus

%
salary £000

16.0

63.8 622

27.6

67.0 366

10.0

41.4 230

33.6

79.0 207

28.4 105.0 620

1. Laura Wade-Gery’s bonus payment reﬂ ects her period of maternity leave which began on 22 August 2015.
2. Targets and achievement exclude shareholder returns and pre acquisition of the subsidiary.

Performance assessment key

Below
Threshold

Threshold > Target

Target > Stretch

Above
stretch

61
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

DEFERRED SHARE BONUS PLAN
(audited)

Currently 50% of any bonus award is
compulsorily deferred into nil-cost options/
conditional shares. These awards vest after
three years subject to continued
employment as well as malus provisions.
The table opposite provides details of share
awards made during the year in respect of
bonus payments made in 2014/15. The face
value of each award reﬂ ects half of the
value shown for 2014/15 bonus payments
in the single ﬁ gure table.

ANNUAL BONUS SCHEME FOR 2016/17

During the year, the Committee discussed
the 2016/17 Scheme, considering the
strategic way forward for M&S under its
new leadership. As a result, some minor
changes to the structure of the Scheme
which are in line with the Remuneration
Policy were approved. These amendments
are aimed at driving the proﬁ table growth
necessary for the success of M&S, more
closely aligning the bonus to arrangements
in the wider workforce.

Performance will be measured against
collective corporate performance as well
as performance in the individual’s speciﬁ c
business area. Individual performance will
continue to be measured independently of
any ﬁ nancial targets. However, no individual
element can be earned unless a ‘threshold’
level of PBT has been achieved. This
maintains the important principle that

FIGURE 14: DSBP AWARDS MADE IN 2015/16

Marc Bolland
Patrick Bousquet-Chavanne
Steve Rowe
Laura Wade-Gery
Helen Weir

Basis of award

50% of bonus
50% of bonus
50% of bonus
50% of bonus
–

Face value of
award2
£000

End of deferral
period

298 19/06/2018
111 19/06/2018
327 19/06/2018
109 19/06/2018
–

–

1. Helen Weir joined M&S during the 2015/16 ﬁ nancial year.
2. The face value of awards is calculated as the number of nil-cost options/conditional shares awarded multiplied by the
average mid-market share price on the ﬁ ve dealing days prior to the date of grant. For this year, the share price was
calculated as being £5.483, being the average share price between 12 June 2015 and 18 June 2015. Further details of
these awards are shown in the table on pages 65-66.

below a deﬁ ned level of ﬁ nancial
performance, no bonus will be earned.

As shown below, 70% of awards will be
measured against Underlying Group
PBT under the corporate element. The
remainder of the bonus will be measured
against individual objectives. These will
be structured so that 10% will be assessed
against the ﬁ nancial performance in local
business areas, 10% against a customer
focused measure and 10% against the
success of implementing the relevant
business change central to success in
2016/17. Local measures will be those
quantiﬁ able deliverables most relevant
to the renewed strategy and will focus on
improving Clothing & Home sales and
controlling our costs, providing value for
money and optimum rates of return on
expenditure for our shareholders.

Laura Wade-Gery’s bonus objectives will
be agreed with her upon her return from
maternity leave but will be structured
similarly, following the same principles.

The targets under these measures are
deemed by the Board to be too
commercially sensitive to disclose at this
time, but where possible, will be disclosed
in next year’s report.

The Committee will continue to judge
overall performance against our ecological,
ethical and behavioural achievements to
ensure consistency with M&S’s values and
behaviours. Success towards Plan A targets
and the M&S values which all employees,
including executive directors, are required
to uphold will underpin the entire Scheme.
The Committee, in its absolute discretion,
may use its judgement to adjust overall
ﬁ nal payments accordingly.

FIGURE 15: ANNUAL BONUS SCHEME TARGETS 2016/17

CORPORATE
TARGETS

INDIVIDUAL OBJECTIVES

GROUP PBT

LOCAL
FINANCIAL

CUSTOMER

INDIVIDUAL

Director

Steve Rowe

%
bonus

70%

%
bonus

10%

%
bonus

10%

Patrick Bousquet-Chavanne

70%

10%

%
bonus

Measure

10% Clothing & Home UK LFL sales

Organisational development

10% Business Unit performance
Organisational development

Laura Wade-Gery

70%

10%

Organisational development

Helen Weir

70%

10%

10% Operating costs

Organisational development

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62
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION REPORT
CONTINUED

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

PERFORMANCE SHARE PLAN (PSP)

The Committee believes that long-term
share awards reward executives for the
delivery of long-term business goals
and make annual awards under the
Performance Share Plan (PSP) to incentivise
executive directors and senior managers.

At the 2015 AGM, shareholders were
asked to approve the introduction of
a replacement PSP as the previously
approved plan had expired. The terms of
this Plan were broadly the same as those
of the previous 2005 Plan. With nearly 98%
of shareholders approving the 2015 Plan,
awards of 250% of salary were awarded
to each executive director in July 2015.

FIGURE 16: PSP AWARDS MADE IN 2015/16

Marc Bolland

Patrick Bousquet-Chavanne

Steve Rowe

Laura Wade-Gery

Helen Weir

PSP AWARDS MADE IN 2015/16 (audited)

As we disclosed last year, minor
amendments to the performance
conditions were made for 2015/16 awards.
Awards will vest subject to the achievement
of stretching targets in those measures
determined to appropriately reﬂ ect the
key drivers of shareholder value and our
strategic business priorities. Targets were
set to reward the delivery of consistent,
ambitious long-term performance.
The Committee regularly reviews
estimated performance throughout
the vesting period.

As shown in Figure 18, performance for
these awards is measured against EPS,
ROCE, sales growth (in M&S.com and
International), cumulative free cash ﬂ ow
and UK Clothing & Home gross margin.
Each performance condition is measured
independently over the three-year period
to the end of the 2017/18 ﬁ nancial year.
Awards will vest on 24 July 2018 to the
extent that the performance conditions
are met.

Basis of award

250% of salary

Face value of award1
£000

End of performance period2

2,438

1,365

1,391

1,421

1,475

31/03/2018

1. The face value of awards is calculated as the number of nil-cost options/conditional shares awarded multiplied by the average mid-market share price on the ﬁ ve dealing days prior to
the date of grant. For this year, the share price was calculated as being £5.334, being the average share price between 17 July 2015 and 23 July 2015. Further details of these awards are
shown in the table on pages 65-66.

2. For threshold performance, 20% of the shares awarded will vest.

FIGURE 17: PSP AWARDS VESTING IN 2015/16 (audited)

For directors in receipt of PSP awards
granted in 2013, the awards will vest on
24 June 2016 based on three-year
performance over the period to

2 April 2016. Performance has been
assessed and it has been determined that
4.8% of the award will vest.

Details of performance against the speciﬁc
targets set are set out in the table below.

Threshold performance targets1

Maximum performance targets1

Actual performance achieved

Percentage of maximum achieved

Performance target

Revenue (£ 2015/16)

EPS Growth2

ROCE (%)

UK3

Multi-channel4

International5

50% of award

20% of award

10% of award

Total vesting6

5.0%

12.0%

2.9%

0.0%

15.0%

18.5%

14.7%

0.0%

£8,900m

£900m

£1,400m

£9,600m

£1,100m

£1,800m

£8,386m

£971m

£1,034m

0.0%

4.8%

0.0%

4.8%

1. 20% of an award vests for threshold performance with full vesting for achieving or exceeding maximum performance. Vesting is a straight line between these two points.
2. Based on base EPS in 2012/13 of 31.9p (restated as a result of IAS19) and ﬁ nal EPS of 34.8p in 2015/16.
3. Excluding Multi-channel.
4. Net of VAT/gross of returns.
5. Excluding Multi-channel/including Republic of Ireland.
6. Details of the number of shares awarded to each director in 2013 are shown in the table on pages 65-66. The estimated value of these awards, including the dividend equivalents,

are set out in the single ﬁ gure table on page 58.

63
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

PSP AWARDS TO BE MADE IN 2016/17

The Committee believes in the importance
of strategically-aligned incentives so
that executive directors are motivated to
deliver the commercial success of M&S.
The Committee’s aim is to ensure realistic
and sustainable targets to support the
delivery of such success. The Committee
therefore intends to make awards under
the PSP in November 2016 shortly after
the announcement of the Interim results,

having allowed Steve Rowe and his
leadership team suffi cient time to develop
M&S’s long-term business plan. This will
ensure that PSP targets are rigorously
reviewed in the context of this new
leadership, rewarding stretching yet
achievable performance designed to
deliver increased shareholder value.
Such awards will vest three years after
the date of grant.

M&S remains committed to clear and
transparent communication and
intends to report back to shareholders
by November 2016 with more detail on
these awards. Awards will remain in line
with the current Remuneration Policy,
ﬁ rst approved by shareholders in 2014.

FIGURE 18: PERFORMANCE CONDITIONS FOR OUTSTANDING PSP AWARDS (audited)

The details of outstanding PSP awards are set out in the table on pages 65 and 66. These awards vest subject to the extent that the
following three-year performance conditions are met.

2014/15 Award

Threshold performance1

Maximum performance1

Annualised
EPS growth
(%)

ROCE
(%)

Revenue (£)5

UK2

Multi-channel3

International4

50% of award

20% of award

10% of award

5.0%

12.0%

15.0%

16.5%

£8,900m

£1,100m

£1,400m

£9,600m

£1,300m

£1,800m

1. Vesting is a straight line between ‘threshold’ at which 20% vests and ‘maximum’ performance at which 100% vests.
2. Excluding Multi-channel.
3. Net of VAT/gross of returns.
4. Excluding Multi-channel/including Republic of Ireland.
5. Measured at the end of 2016/17.

2015/16 Award

Threshold performance1
Maximum performance1

Financial strategic scorecard

Annualised EPS
growth (%)

ROCE
(%)

International
sales growth2
(%)

M&S.com sales
growth3
(%)

UK
Clothing & Home
gross margin4

Cumulative
free cash ﬂ ow5

50% of award

20% of award

7.5% of award

5.0%
12.0%

15.0%
16.5%

5.0%
15.0%

11.0%
18.0%

–
–

£1,350m
£1,650m

1. Vesting is a straight line between ‘threshold’ at which 20% vests and ‘maximum’ performance at which 100% vests.
2. Excluding M&S.com/including Republic of Ireland.
3. Net of VAT and post store returns.
4. Targets relating to UK Clothing & Home gross margin are deemed by the Board to be too commercially sensitive to disclose, but will be retrospectively disclosed in the report relating

to the end of the relevant three-year performance period.

5. Pre dividends and returns

ALL-EMPLOYEE SHARE SCHEMES (audited)

Executive directors may participate in both ShareSave, the Company’s Save As You Earn scheme, and ShareBuy, the Company’s
Share Incentive Plan on the same basis as all other eligible employees. Further details of the Schemes are set out in note 13 to the
ﬁnancial statements on pages 106 and 107.

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64
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION REPORT
CONTINUED

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

FIGURE 19: DIRECTORS’ SHAREHOLDINGS (audited)

The table below sets out the total number
of shares held at 2 April 2016 or date of
retirement by each executive director
serving on the Board during the year.

There have been no changes in the current
directors’ interests in shares or options
granted by the Company and its
subsidiaries between the end of the

ﬁnancial year and 24 May 2016. No director
had an interest in any of the Company’s
subsidiaries at the statutory end of the year.

Marc Bolland

Patrick Bousquet-Chavanne

John Dixon1

Steve Rowe

Laura Wade-Gery

Helen Weir

Unvested

With performance
conditions

Without
performance conditions

Shares owned
outright2

Performance
Share Plan

Deferred Share
Bonus Plan

Restricted
Share Plan

Vested but
unexercised3

683,929

99,070

361,076

188,535

172,955

4,500

1,572,534

772,669

686,498

861,512

898,029

276,527

149,153

46,448

82,277

110,013

73,622

56,995

1. Shareholding at 16 July 2015, the date John Dixon resigned from the Board. Please refer to footnote 3 on page 65 for further information on John Dixon’s shareholdings.
2. Includes shares held by connected persons.
3. Comprises all unexercised awards under these plans.

FIGURE 20: SHAREHOLDING REQUIREMENTS (audited)

All executive directors are required to
hold shares equivalent in value to a
minimum percentage of their salary within
a ﬁve-year period from their appointment
date. For the CEO this requirement is 250%
of salary and for other Board directors the
requirement is 150% of salary. Similar
guidelines of 100% of salary also apply
to directors below Board level.

The chart below shows the extent to
which each director has met their target
shareholding as at 2 April 2016.

For the purposes of the requirements, the
net number of unvested share awards not
subject to performance conditions is
included and is reﬂ ected in the chart below.
The Committee is satisﬁ ed that the current
level of shareholding requirement provides

an appropriate level of investment in M&S
for each director. The Committee will
continue to keep this issue under review
and will amend accordingly if necessary.

Following Steve Rowe’s appointment to
CEO on 2 April 2016, his shareholding
requirement has been increased to 250%
of his new salary which will be reported in
next year’s report.

Steve Rowe

Patrick Bousquet-Chavanne

96%

Laura Wade-Gery

Helen Weir

150% of salary

192%

188%

Key

Shares owned outright

Vested and unexercised

Unvested DSBP/RSP shares

Shareholding requirement

SHARE CAPITAL & DILUTION

Dilution of share capital by employee
share plans
Awards granted under the Company’s
Save As You Earn scheme and the
Executive Share Option scheme are met
by the issue of new shares when the
options are exercised.

All other share plans are met by market
purchase shares. The Company monitors
the number of shares issued under these
schemes and their impact on dilution limits.

The Company’s usage of shares compared
to the dilution limits set by The Investment
Association in respect of all share plans
(10% in any rolling ten-year period) and
executive share plans (5% in any rolling
ten-year period) as at 2 April 2016 was
as follows:

FIGURE 21: ALL SHARE PLANS

Actual

Limit

6.30%

10%

FIGURE 22: EXECUTIVE SHARE PLANS

Actual

Limit

65
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

FIGURE 23: EXECUTIVE DIRECTORS’ INTERESTS IN THE COMPANY’S SHARE SCHEMES (audited)

Maximum
receivable at
29 March 2015
(or date of
appointment)

Date
of grant

Awarded
during
the year

Exercised
during
the year

Lapsed
during
the year

Maximum
receivable at
2 April 2016
(or date of
retirement)

Share
price
on date
of grant
(p)

Share
price on
date of
exercise
(p)

Option
price
(p)

Exercise period/
vesting date

Marc Bolland

Performance Share Plan1

18/06/12

749,769

24/06/13

557,780

23/06/14

557,780

–

24/07/15

– 456,974

Deferred Share Bonus Plan

18/06/12

101,968

– 101,968

35,239

714,530

–

24/06/13

94,822

–

19/06/15

–

54,331

21/11/13

2,222

–

2,064,341 511,305 137,207

714,530 1,723,909

557,780

0.0

325.1 543.5

–

437.0

– 24/06/16 – 23/06/23

– 23/06/17 – 22/06/24

456,974

0.0 533.4

– 24/07/18 – 23/07/25

–

94,822

0.0

325.1 543.5

–

437.0

– 24/06/16 – 23/06/23

54,331

0.0 548.3

– 19/06/18 – 18/06/25

2,222 405.0 505.6

– 01/01/17 – 30/06/17

Patrick Bousquet-Chavanne2

Performance Share Plan1

05/12/12

230,735

24/06/13

216,421

23/06/14

300,343

–

24/07/15

– 255,905

Deferred Share Bonus Plan

24/06/13

26,195

–

19/06/15

–

20,253

Restricted Share Plan

13/09/12

174,258

– 174,258

10,844

219,891

–

389.4 503.0

216,421

300,343

255,905

26,195

20,253

437.0

–

437.0

533.4

437.0

548.3

–

368.0 505.0

–

24/06/16

24/06/17

24/07/18

24/06/16

19/06/18

–

21/11/13

2,222

–

2,222 405.0 505.6

– 01/01/17 – 30/06/17

950,174 276,158 185,102

219,891

821,339

SAYE

Total

John Dixon3

Performance Share Plan1

18/06/12

432,174

24/06/13

343,249

23/06/14

343,249

Deferred Share Bonus Plan

18/06/12

24/06/13

19/06/15

62,233

62,471

–

19,806

21/11/13

2,222

–

20,312

411,862

–

343,249

62,233

–

62,471

19,806

2,222

–

325.1 536.0

437.0

–

325.1 543.5

0.0

437.0

0.0 548.3

– 405.0 505.6

–

1,245,598 19,806 82,545 1,182,859

–

1. The number of options/conditional shares shown under the Performance Share Plan is the maximum (100%) number that could be receivable by the executive director if the

performance conditions are fully met. The 2012 award vested in June 2015 at 4.7% (December 2015 for Patrick Bousquet-Chavanne). 4.8% of the 2013 award will vest in June 2016,
as set out on page 62.

2. Patrick Bousquet-Chavanne’s awards are structured as conditional shares. His RSP award was made prior to his appointment to executive director.
3. John Dixon resigned from the Board on 16 July 2015 and left the Company on 16 January 2016. Details of his leaving arrangements are set out on page 68. All awards made in 2013,

2014 and 2015 and his SAYE award lapsed on leaving the Company. For transparency, these are shown in the ‘lapsed during the year’ column.

SAYE

Total

SAYE

Total

–

S
S
E
N
S
U
B
R
U
O

E
C
N
A
M
R
O
F
R
E
P
R
U
O

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F

66
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION REPORT
CONTINUED

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

FIGURE 23: EXECUTIVE DIRECTORS’ INTERESTS IN THE COMPANY’S SHARE SCHEMES (audited) (continued)

Maximum
receivable at
29 March 2015
(or date of
appointment)

Date
of grant

Awarded
during
the year

Exercised
during
the year

Lapsed
during
the year

Maximum
receivable at
2 April 2016
(or date of
retirement)

Share
price
on date
of grant
(p)

Share
price on
date of
exercise
(p)

Option
price
(p)

Exercise period/
vesting date

Steve Rowe

Performance Share Plan1

18/06/12

232,912

24/06/13

300,343

23/06/14

300,343

–

24/07/15

– 260,826

Deferred Share Bonus Plan

18/06/12

32,753

24/06/13

50,457

–

19/06/15

–

59,556

21/11/13

2,222

–

SAYE

Total

Laura Wade-Gery

10,946

221,966

–

32,753

–

300,343

0.0

325.1 543.5

–

437.0

– 24/06/16 – 23/06/23

– 23/06/17 – 22/06/24

260,826

0.0 533.4

24/07/18 – 23/07/25

–

50,457

0.0

325.1 543.5

–

437.0

– 24/06/16 – 23/06/23

59,556

0.0 548.3

– 19/06/18 – 18/06/25

2,222 405.0 505.6

– 01/01/17 – 30/06/17

919,030 320,382 43,699

221,966

973,747

Performance Share Plan1

18/06/12

416,025

24/06/13

315,789

23/06/14

315,789

–

24/07/15

– 266,451

Deferred Share Bonus Plan

18/06/12

37,442

24/06/13

53,684

–

19/06/15

–

19,938

–

396,472

19,553

315,789

0.0

325.1

437.0

– 18/06/15 – 17/06/22

– 24/06/16 – 23/06/23

– 23/06/17 – 22/06/24

266,451

0.0 533.4

– 24/07/18 – 23/07/25

37,442

53,684

0.0

325.1

437.0

– 18/06/15 – 17/06/22

– 24/06/16 – 23/06/23

19,938

0.0 548.3

– 19/06/18 – 18/06/25

Total

Helen Weir

Performance Share Plan1

SAYE

Total

1,138,729 286,389

– 396,472 1,028,646

24/07/15

19/11/15

– 276,527

–

2,083

– 278,610

–

276,527

0.0 533.4

– 24/07/18 – 23/07/25

2,083 432.0 539.2

– 01/01/19 – 30/06/19

278,610

1. The number of options/conditional shares shown under the Performance Share Plan is the maximum (100%) number that could be receivable by the executive director if the

performance conditions are fully met. The 2012 award vested in June 2015 at 4.7% (December 2015 for Patrick Bousquet-Chavanne). 4.8% of the 2013 award will vest in June 2016,
as set out on page 62.

2014 and 2015 and his SAYE award lapsed on leaving the Company. For transparency, these are shown in the ‘lapsed during the year’ column.

The aggregate gains of directors arising in the year from the exercise of options granted under the PSP, DSBP, RSP and SAYE totalled £2,364,978.

The market price of the shares at the end of the ﬁ nancial year was 407.3p; the highest and lowest share price during the ﬁ nancial year were 596.5p and 392.5p respectively.

67
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

FIGURE 24: PERFORMANCE AND CEO REMUNERATION COMPARISON

This graph illustrates the Company’s
performance against the FTSE 100
over the past seven years. The FTSE 100
has been chosen as the appropriate
comparator as M&S is a constituent of
this index. The calculation of TSR is in
accordance with the relevant
remuneration regulations. The table
below the TSR chart sets out the
remuneration data for directors
undertaking the role of CEO during
each of the last seven ﬁnancial years.

300

250

200

150

100

Marks and Spencer Group plc
FTSE 100 Index
Source: Thomson Reuters

CEO single ﬁgure of remuneration
(£000)

Annual bonus payment
(% of maximum)

PSP vesting
(% of maximum)

28 March 2009

3 April 2010

29 March 2011

2 April 2012

30 March 2013

29 March 2014

28 March 2015

2 April 2016

CEO1

2009/10

Marc Bolland

–

Stuart Rose

4,294

2010/11

5,998

269

2011/12

2012/13

2013/14

2014/15

2015/16

3,324

2,142

1,568

2,095

2,039

–

Marc Bolland

–

45.80%

34.00%

42.50%

0.00%

30.55%

31.90%

Stuart Rose

97.00%

57.40%

–

Marc Bolland

–

31.96%

0.00%

7.60%

4.70%

4.80%

Stuart Rose

0.00%

–

1. Marc Bolland was appointed CEO on 1 May 2010. His single ﬁ gure for 2010/11 includes recruitment awards made to him at that time to compensate him for incentive awards forfeited on

cessation from his previous employer. Stuart Rose undertook the role of CEO from 31 May 2004 to 30 April 2010.

FIGURE 25: PERCENTAGE CHANGE IN CEO’S REMUNERATION

The table opposite sets out the change in
the CEO’s remuneration (i.e. salary, taxable
beneﬁts and annual bonus) compared with
the change in our UK-based employees.
This group has been chosen as the majority
of our workforce is UK-based. As can
be seen, average FTE salaries for UK
employees increased by 3.9%, in excess
of that provided to the CEO.

CEO

UK employees (average per FTE)

% change 2014/15 – 2015/16

Base salary

Beneﬁ ts

Annual bonus

0.0%

3.9%

0.0%

0.6%

4.4%

37.3%

FIGURE 26: RELATIVE IMPORTANCE OF SPEND ON PAY

The table opposite illustrates the
Company’s expenditure on pay in
comparison to proﬁts before tax and
distributions to shareholders by way of
dividend payments and share buyback.

Total employee pay is the total pay for
all Group employees. Underlying Group
Proﬁt Before Tax has been used as a
comparison as this is the key ﬁnancial
metric which the Board consider when
assessing Company performance.

Total employee pay

Total returns to shareholders1

Underlying Group Proﬁt Before Tax

2014/15
£m

1,406.2

280.7

661.2

2015/16
£m

1486.7

451.7

684.1

% change

5.7

60.9

3.5

1. Total returns to shareholders for 2015/16 includes distribution to shareholders via share buyback.

S
S
E
N
S
U
B
R
U
O

E
C
N
A
M
R
O
F
R
E
P
R
U
O

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S
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A
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N
A
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I
F

68
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION REPORT
CONTINUED

EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

FIGURE 27: SERVICE AGREEMENTS

In line with our Policy, directors have rolling
contracts which may be terminated by the
Company giving 12 months’ notice or the
director giving six months’ notice.

Steve Rowe

Date of appointment Notice period/unexpired term

01/10/2012

12 months/6 months

Patrick Bousquet-Chavanne

10/07/2013

12 months/6 months

Steve Rowe’s service agreement was
updated on his appointment to CEO
on 2 April 2016.

Laura Wade-Gery

Helen Weir

04/07/2011

12 months/6 months

01/04/2015

12 months/6 months

EXECUTIVE CHANGES TO THE BOARD DURING 2015/16

Directors appointed to the Board
Helen Weir joined the Board on 1 April 2015
as Chief Finance Offi cer as reported last
year. Full details of her pay arrangements
on joining were disclosed in our 2014/15
report.

Payments for the loss of offi ce (audited)
John Dixon Executive Director,
General Merchandise resigned from
the Board on 16 July 2015 and left the
Company after a period of garden leave on
16 January 2016. In line with his contractual
arrangements, John received a payment of
£49,431 in respect of accrued but untaken
holiday as per the Company’s standard
holiday policy for leavers. Any share awards
which had not vested prior to the date he
left the business lapsed at this time.

Payments to past directors (audited)
Steven Sharp retired from the Board on
9 July 2013 and had two outstanding
awards under the Performance Share Plan.
In accordance with the rules of the
Performance Share Plan, 4.7% of his 2012
award (24,396 shares) vested in May 2015,
equating to £153,302, including dividend
equivalents. Steven has no further
outstanding awards.

Changes to the Board in 2016/17
Marc Bolland, CEO retired from the Board
on 2 April 2016. In line with his contractual
arrangements, Marc will receive salary,
beneﬁ ts and pension beneﬁ ts until the
end of his notice period on 7 January 2017.
Marc will not be eligible to participate in
either the Annual Bonus Scheme or
Performance Share Plan for 2016/17.
Per the approved Remuneration Policy,

any unvested nil-cost options awarded to
Marc Bolland under the Deferred Share
Bonus Plan will vest in full on leaving and
may be exercised in accordance with the
Plan rules. As per the Policy, any unvested
nil-cost options awarded under the
Performance Share Plan will be time pro-
rated and will vest on the normal vesting
date, to the extent that performance
conditions are met. They may then be
exercised in accordance with the Plan rules.

Directors changing roles within
the Board
Steve Rowe became Chief Executive
Offi cer on 2 April 2016, upon Marc Bolland’s
retirement from the Board. From this date,
Steve’s salary increased to £810,000 with
all other terms of his existing service
agreement remaining unchanged.

FIGURE 28: EXTERNAL APPOINTMENTS

The Company recognises that executive
directors may be invited to become
non-executive directors of other
companies and that these appointments
can broaden their knowledge and
experience to the beneﬁt of the Company.
The policy is for the individual director
to retain any fee.

The table opposite sets out the details
for these fees earned for the period
29 March 2015 to 2 April 2016.

Director

Marc Bolland

Company

The Coca-Cola Company

Patrick Bousquet-Chavanne

Brown-Forman

Laura Wade-Gery

British Land Company

Helen Weir

SABMiller

Rugby Football Union

Fee
000

$250

$267

£44

£117

£25

69
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NON-EXECUTIVE DIRECTORS’ REMUNERATION

FIGURE 29: NON-EXECUTIVE DIRECTORS’ TOTAL SINGLE FIGURE REMUNERATION (audited)

Non-executive directors receive fees
reﬂective of the time commitment,
demands and responsibilities of the role.
The table opposite details the fees paid to
the non-executive directors for 2015/16
and 2014/15.

In recognition and support of the proposed
new pay arrangements being made in the
UK organisation, the Chairman and the
non-executive directors declined to accept
any increase in their fees.

Director

Robert Swannell

Vindi Banga

Alison Brittain

Miranda Curtis

Andrew Fisher1

Martha Lane Fox

Andy Halford

Richard Solomons2

Basic fees

£000

Additional
fees
£000

Beneﬁ ts

£000

–

380

–

––

Year

2015/16

2014/15

2015/16

2014/15

2015/16

2014/15

2015/16

2014/15

2015/16

2014/15

2015/16

2014/15

2015/16

2014/15

2015/16

2014/15

Total

£000

470

468

100

1. The amounts shown for 2015/16 reﬂ ect that Andrew Fisher joined the Board on 1 December 2015.
2. The amounts shown for 2015/16 reﬂ ect that Richard Solomons joined the Board on 13 April 2015.

FIGURE 30: NON-EXECUTIVE DIRECTORS’ SHAREHOLDINGS (audited)

The non-executive directors are not
permitted to participate in any of the
Company’s incentive arrangements.
The non-executive directors are required
to build and maintain a shareholding of
at least 2,000 shares in the Company
within two months of their appointment
to the Board.

The table opposite details the shareholding
of the non-executive directors who
served on the Board during the year as at
2 April 2016 (or upon their date of retiring
from the Board).

There have been no changes in the current
non-executive directors’ interests in
shares in the Company and its subsidiaries
between the end of the ﬁnancial year
and 24 May 2016.

FIGURE 31: NON-EXECUTIVE DIRECTORS’ AGREEMENTS FOR SERVICE

Non-executive directors have an
agreement for service for an initial
three-year term which can be terminated
by either party giving three months’ notice
(six months’ for the Chairman).

The table opposite sets out these terms
for all current members of the Board.

Director

Robert Swannell

Vindi Banga

Alison Brittain

Miranda Curtis

Andrew Fisher

Andy Halford

Richard Solomons

Director

Number of shares held1

Robert Swannell

Vindi Banga

Alison Brittain

Miranda Curtis

Andrew Fisher

Martha Lane Fox

Andy Halford

Richard Solomons

143,000

93,700

5,096

5,500

3,536

20,100

21,000

5,000

1. Includes shares held by connected persons.

Date of appointment Notice period/unexpired term

23/08/2010

6 months/6 months

01/09/2011

3 months/3 months

01/01/2014

3 months/3 months

01/02/2012

3 months/3 months

01/12/2015

3 months/3 months

01/01/2013

3 months/3 months

13/04/2015

3 months/3 months

S
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S
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E
C
N
A
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O
F
R
E
P
R
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E
C
N
A
N
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E
V
O
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S
T
N
E
M
E
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A
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A
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N
A
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70
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

REMUNERATION REPORT
CONTINUED

NON-EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED

NON-EXECUTIVE DIRECTORS’ CHANGES TO THE BOARD DURING 2014/15

Directors appointed to the Board
Andrew Fisher joined the Board on
1 December 2015 as a non-executive
director. Andrew is a member of the
Nomination Committee and the Audit
Committee. In accordance with the Policy,
Andrew receives an annual fee of £70,000.

Richard Solomons joined the Board on
13 April 2015 as a non-executive director.
Richard is a member of the Nomination
Committee and the Remuneration
Committee. In accordance with the Policy,
Richard receives an annual fee of £70,000.

Directors retiring from the Board
Martha Lane Fox retired from the Board
on 2 April 2016. There were no payments
for loss of offi ce payable to Martha.

REMUNERATION COMMITTEE

REMUNERATION COMMITTEE REMIT

The role of the Remuneration Committee
is to make recommendations regarding
the senior remuneration strategy and
framework to the Board to ensure
the executive directors and senior
management are appropriately rewarded
for their contribution to the Company’s
performance, taking into account the
ﬁnancial and commercial position of
the Company.

KEY RESPONSIBILITIES

> Setting a strategy that ensures the most
talented leaders are recruited, retained
and motivated to deliver results.

> Reviewing the eff ectiveness of the

senior remuneration framework with
regard to its impact.

> Considering the appropriateness of
the senior remuneration framework
when reviewed against arrangements
throughout the rest of the organisation.

> Determining the terms of employment

and remuneration for executive
directors and senior managers
including recruitment and termination
arrangements.

> Approving the design, targets and
payments for all annual incentive
schemes that include executive
directors and senior managers.

> Agreeing the design, targets and annual
awards made for all share incentive plans
requiring shareholder approval.

> Assessing the appropriateness

and subsequent achievement of
performance targets relating to
any share incentive plan.

In line with its remit, the Committee
considered a number of key matters
during the year.

> Assessment of the external environment

surrounding the Company’s current
remuneration arrangements.

REMUNERATION COMMITTEE
AGENDA FOR 2015/16

Regular items
> Approval of the Directors’ Remuneration
Report for 2014/15 and review of the AGM
voting outcome for the Report.

> Annual review of all executive directors’
and senior managers’ base salaries and
beneﬁ ts in line with Company policies
and approval of any salary increase.

> Review of achievement of Annual Bonus

Scheme proﬁ t against target.

> Review of achievement of executive

directors’ individual objectives
for 2015/16.

> Review of the structural design,

measures and approach to targets for
the 2015/16 Annual Bonus Scheme.

> Review and approval of all awards made
under the PSP taking into account the
total value of all awards made under
this plan.

> Half year and year end review of all share

plan performance against targets.

> Consideration of external market
developments and best practice
in remuneration.

> Review of Committee performance

in 2015/16.

> Review of Committee Terms

of Reference.

Note: The full Terms of Reference
for the Committee can be found
on the Company’s website at
marksandspencer.com/thecompany

REMUNERATION COMMITTEE
ACTION PLAN 2015/16

> Review the executive remuneration

framework to ensure strategic
alignment with the revised ﬁ nancial
and strategic plan.

> Review and update the Remuneration

Policy prior to seeking formal
shareholder approval in July 2017.

> Review senior management

remuneration regularly to provide
greater support to Board discussions
on talent and development.

> Approval of the vesting level of the

> Ensure formal annual review of wider

2013/14 PSP awards.

workforce reward framework.

> Consideration of the approach to be
taken for the 2016/17 PSP awards.

> Review the eff ectiveness and

transparency of remuneration reporting.

> Clear articulation of the Committee’s

reasoning and consideration for vesting
and payment levels to executive
directors.

> Signiﬁ cant consideration of institutional

investors’ current guidelines on
executive compensation.

> Consideration of remuneration

arrangements for the wider workforce.

> Review of, and agreement to,

remuneration packages for new
senior managers.

COMMITTEE ADVISORS

In carrying out its responsibilities, the
Committee is independently advised by
external advisors. The Committee was
advised by PwC during the year. PwC is
a founding member of the Remuneration
Consultants Group and voluntarily
operates under the code of conduct
in relation to executive remuneration
consulting in the UK. The code of
conduct can be found at
remunerationconsultantsgroup.com.

71
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

REMUNERATION COMMITTEE CONTINUED

The Committee has not explicitly
considered the independence of the advice
it receives, although it regularly reﬂ ects on
the quality and objectivity of this advice.
The Committee is satisﬁ ed that any
conﬂ icts are appropriately managed.

The Committee also reviews external
survey and bespoke benchmarking
data including that published by
New Bridge Street (the trading name
of Aon Hewitt Limited), KPMG, PwC and
Willis Towers Watson.

PwC were appointed by the Committee as
its independent advisors in 2014 following
a rigorous and competitive tender process.
PwC provides independent commentary
on matters under consideration by the
Committee and updates on legislative
requirements, best practice and market
practice. PwC’s fees are typically charged
on an hourly basis with costs for work
agreed in advance. During the year,
PwC charged £94,366 for Remuneration
Committee matters. PwC has provided tax,
consultancy and risk consulting services to
the Group in the ﬁ nancial year.

The Committee also seeks internal
support from the CEO, Group Secretary,
Director of Human Resources and
Head of Reward & Global Mobility as
necessary. All may attend the Committee
meetings by invitation but are not present
for any discussions that relate directly to
their own remuneration.

REMUNERATION COMMITTEE
STAKEHOLDER ENGAGEMENT

The Committee is committed to ensuring
that executive pay remains competitive,
appropriate and fair in the context of the
external market, Company performance
and the pay arrangements of the wider
workforce. In collaboration with the
Head of Reward & Global Mobility, the
Committee gives employees, through
employee representatives, the opportunity
to raise questions or concerns regarding
the remuneration of the executive
directors. During the year, employee
representatives were given the opportunity
to discuss in detail the directors’ pay
arrangements. Details of the directors’
pay arrangements were discussed in the
context of the reward framework for the
rest of the organisation and external
factors; no concerns were raised.

SHAREHOLDER CONSULTATION

The Committee is committed to a
continuous, open and transparent dialogue
with shareholders on the issue of executive
remuneration. The Committee was
represented at the Company’s annual
Governance Event, held in June 2015, at
which major institutional investors and
representative bodies were provided
with the opportunity to review and
debate remuneration with the
Committee Chairman Vindi Banga.

SHAREHOLDER SUPPORT
FOR THE 2014/15 DIRECTORS’
REMUNERATION REPORT

At the Annual General Meeting on
7 July 2015, 99.07% of shareholders voted
in favour of approving the Directors’
Remuneration Report for 2014/15. The
Committee believes this illustrates the
strong level of shareholder support for
the senior remuneration framework.

The table below shows full details of
the voting outcomes for the 2014/15
Directors’ Remuneration Report and
Remuneration Policy.

FIGURE 32: VOTING OUTCOMES FOR 2014/15 REMUNERATION REPORT

Remuneration Report

Replacement PSP

Replacement ESOS

Votes for

% Votes for

Votes against

% Votes against

Votes withheld

999,791,106

993,189,266

978,771,734

99.07

97.97

95.94

9,400,794

20,572,593

41,398,007

0.93

2.03

4.06

14,741,053

10,042,615

3,810,085

FIGURE 33: VOTING OUTCOMES FOR REMUNERATION POLICY (2013/14)

Remuneration Policy

1,012,469,256

98.27

17,840,854

1.73

9,040,797

Votes for

% Votes for

Votes against

% Votes against

Votes withheld

APPROVED BY THE BOARD

Vindi Banga Chairman of the Remuneration Committee
London, 24 May 2016

This remuneration policy and these remuneration reports have been prepared in accordance with the relevant provision of the Companies Act 2006 and
on the basis prescribed in the large and medium-sized Companies and Groups (Accounts and Reports) (Amendments) Regulations 2013 (‘the Regulations’).
Where required, data has been audited by Deloitte and this is indicated appropriately.

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72
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

GOVERNANCE

PENSIONS GOVERNANCE

The Group operates a deﬁ ned beneﬁ t
pension scheme (the ‘Scheme’) for
employees with an appointment date
prior to 1 April 2002.

The results of the triennial actuarial
valuation of the Scheme as at 31 March
2015 revealed a surplus of £204m on a
technical provisions basis. This represents
a healthy improvement from a deﬁ cit of
£290m as at 31 March 2012 as a result of
agreed recovery plan contributions from
the Company and outperformance of
return seeking assets over the period.
The scheme has also been fully hedged
against interest rate and inﬂ ation risks
and was thus insulated from the eff ect of
falling real interest rates. Scheme funding
is closely and frequently monitored and
diversiﬁ cation of Scheme investment
risks continues.

The pension scheme, the assets of which
are held under trust separately from those
of the Group, is managed by the Board
of the Pension Trust (‘Trustee Board’).
The Trustee Board comprises four
Company nominated directors, including
the Chairman, Graham Oakley, three
member nominated directors and two
independent directors. All directors are
appointed for a ﬁ ve year term and may
stand for additional terms.

The Trustee Board operates a number of
committees including: Management and
Governance, Investment and Audit to which
responsibilities are delegated. The Trustee
Board is supported by an executive team
who manage the governance and operation
of the scheme.

The Trustee Board has a business plan
against which progress is measured
periodically in a similar approach to the
Group Board. There is also an annual Board
Eff ectiveness Review and both the Trustee
Board and the Investment Committee
hold annual strategy days which help
drive the long term agenda and the
business plan priorities.

Each Trustee Board Director has an
individual training plan, which is based
on the Pension Regulator’s Trustee
Knowledge and Understanding
requirements and tailored to address
any skill gaps and speciﬁ c Committee
roles. The majority of the Trustee Board
members hold the Pensions Management
Institute Award in Trusteeship.

All advisers, investment managers and
suppliers are appointed through a rigorous
tender process. They are monitored via
quarterly reports and periodic meetings
and there is also a rolling programme of
both informal and formal adviser reviews.

In addition to six monthly reports from
EY as covenant adviser, the Trustee Board
also receives presentations from the Chief
Finance Offi cer after the Group’s Year End
and Half Year results.

The scheme is a signatory to the UN
Principles for Responsible Investment
and the Financial Reporting Council’s UK
Stewardship Code. It has partnered with
a specialist engagement service, Hermes
Equity Ownership Services (EOS), to
exercise its global equity voting rights
in accordance with a detailed Trustee
Board policy, which addresses a range of
governance, social and environmental
issues. The engagement of EOS enhances
the Trustee Board’s stewardship and
governance oversight of investee
companies by engaging with companies
on a global basis. The results of these
voting and engagement activities are
published quarterly on the M&S Pension
Scheme’s website.

73
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

GOVERNANCE

OTHER DISCLOSURES

DIRECTORS’ REPORT

Marks and Spencer Group plc (the
‘Company’) is the holding company of the
Marks & Spencer Group of companies (the
‘Group’). With our rich heritage, M&S is one
of the most recognisable brands in the UK
retail sector and is regularly voted as one
of its most trusted. Our business is driven
by a desire to inspire and innovate; to act
with integrity and to stay in touch with our
customers, shareholders and employees
alike. These are our corporate values and
they underpin everything we do. They are
what make the M&S diff erence across the
59 territories in which we operate.

The Directors’ Report (also the
Management Report) for the year ended
2 April 2016 comprises pages 30 to 77
and page 127 to 128 of this report, together
with the sections of the Annual Report
incorporated by reference. As permitted
by legislation, some of the matters
normally included in the Directors’ Report
have instead been included in the
Strategic Report on pages 2 to 29, as the
Board considers them to be of strategic
importance. Speciﬁ cally, these are:

> Future business developments

(throughout the Strategic Report).

> Research and development p14.

> Risk management on p27-29.

Details of branches operated by the
Company can be found on page 17 of
the Strategic Report.

Information relating to ﬁ nancial
instruments are on pages 112 to 117.

Both the Strategic Report and the
Directors’ Report have been drawn up
and presented in accordance with and in
reliance upon applicable English company
law, and the liabilities of the directors in
connection with that report shall be
subject to the limitations and restrictions
provided by such law. For information on
our approach to social, environmental
and ethical matters please refer to our
Plan A Report, available to view online
at marksandspencer.com/plana2016.
Other information to be disclosed in the
Directors’ Report is given in this section.

INFORMATION TO BE
DISCLOSED UNDER LR 9.8.4R

Listing Rule

Detail

9.8.4R (1) (2)
(5-14) (A) (B) Not applicable
9.8.4R (4)

Long-term
incentive schemes

BOARD OF DIRECTORS

Page
reference

N/A

54 and
62-63

The membership of the Board and
biographical details of the directors
are given on pages 32 and 33 and are
incorporated into this report by reference.
Changes to the directors during the year
and up to the date of this report, are set out
below. Details of directors’ beneﬁ cial and
non-beneﬁ cial interests in the shares of the
Company are shown on pages 64 and 69.
Options granted under the Save As You
Earn (SAYE) Share Option and Executive
Share Option Schemes are shown on pages
65 and 66. Further information regarding
employee share option schemes is given
in note 13 to the ﬁ nancial statements.

Name

Role

Helen
Weir
Richard
Solomons

John
Dixon
Andrew
Fisher

Martha
Lane Fox
Marc
Bolland
Steve
Rowe

Chief Finance
Offi cer
Non-executive
director
Executive
Director, General
Merchandise

Non-executive
Director
Non-executive
Director
Chief Executive
Offi cer
Chief Executive
Offi cer

Eff ective date of
appointment/
resignation

Appointed
1 April 2015

Appointed
13 April 2015

Resigned
16 July 2015
Appointed
1 December
2015

Retired
2 April 2016

Appointed
2 April 2016

The appointment and replacement of
directors is governed by the Company’s
Articles, the UK Corporate Governance
Code (the ‘Code’), the Companies Act 2006
and related legislation. The Articles may
be amended by a special resolution of the
shareholders. Subject to the Articles, the
Companies Act 2006 and any directions
given by special resolution, the business
of the Company will be managed by the
Board who may exercise all the powers of
the Company. The Company may by

ordinary resolution declare dividends
not exceeding the amount recommended
by the Board. Subject to the Companies
Act 2006, the Board may pay interim
dividends and also any ﬁ xed rate dividend,
whenever the ﬁ nancial position of the
Company, in the opinion of the Board,
justiﬁ es its payment.

The directors may from time to time
appoint one or more directors. The Board
may appoint any person to be a director
(so long as the total number of directors
does not exceed the limit prescribed in
the Articles). Under the Articles, any such
director shall hold offi ce only until the next
AGM and shall then be eligible for election.
The Articles also require that at each AGM
at least one-third of the current directors
should retire as directors by rotation. All
those directors who have been in offi ce at
the time of the two previous AGMs and
who did not retire at either of them must
retire as directors by rotation. In addition,
a director may at any AGM retire from offi ce
and stand for re-election. However, in line
with the UK Corporate Governance Code
2014, all directors will stand for annual
election at the 2016 AGM.

DIRECTORS’ CONFLICTS OF INTEREST

The Company has procedures in place for
managing conﬂ icts of interest. Should a
director become aware that they, or their
connected parties, have an interest in an
existing or proposed transaction with
Marks & Spencer, they should notify the
Board in writing or at the next Board
meeting. Internal controls are in place to
ensure that any related party transactions
involving directors, or their connected
parties, are conducted on an arm’s length
basis. Directors have a continuing duty to
update any changes to these conﬂ icts.

DIRECTORS’ INDEMNITIES

The Company maintains directors’ and
offi cers’ liability insurance which gives
appropriate cover for legal action brought
against its directors. The Company has also
granted indemnities to each of its directors
and the Group Secretary to the extent
permitted by law. Qualifying third-party
indemnity provisions (as deﬁ ned by section
234 of the Companies Act 2006) were in
force during the year ended 2 April 2016
and remain in force, in relation to certain
losses and liabilities which the directors
(or Group Secretary) may incur to third

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74
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

OTHER DISCLOSURES
CONTINUED

parties in the course of acting as directors
or Group Secretary or employees of the
Company or of any associated company.

Qualifying pension scheme indemnity
provisions (as deﬁ ned by section 235 of the
Companies Act 2006) were in force during
the course of the ﬁ nancial year ended
2 April 2016 for the beneﬁ t of the Trustees
of the Marks and Spencer pension scheme,
both in the UK and the Republic of Ireland.

PROFIT AND DIVIDENDS

The proﬁ t for the ﬁ nancial year, after
taxation, amounts to £404.4m (last year
£481.7m). The directors have declared
dividends as follows:

Ordinary shares

£m

Paid interim dividend
of 6.8p per share
(last year 6.4p per share)
Proposed ﬁ nal dividend
of 11.9p per share
(last year 11.6p per share)
Total ordinary dividend of
18.7p per share
(last year 18.0p per share)
Special dividend

£110.9m

£192.6m

£303.5m
£75m

The ﬁ nal ordinary dividend and the special
dividend will be paid on 15 July 2016 to
shareholders whose names are on the
Register of Members at the close of
business on 3rd June 2016.

SHARE CAPITAL

The Company’s issued ordinary share
capital as at 2 April 2016 comprised a single
class of ordinary share. Each share carries
the right to one vote at general meetings
of the Company.

During the period, 6,797,209 ordinary shares
in the Company were issued as follows:

> 62,230 shares under the terms of the
2002 Executive Share Option Scheme
at a price of 352p.

> 6,645,922 shares under the terms of the

United Kingdom Employees’ Save As You
Earn Share Option Scheme at prices
between 258p and 405p.

> 89,057 shares under the terms of the

ROI Employees’ Save As You Earn Share
Option Scheme at prices between 258p
and 405p.

Details of movements in the Company’s
issued share capital can be found on page
119 in note 24 to the ﬁ nancial statements.

RESTRICTIONS ON
TRANSFER OF SECURITIES

There are no speciﬁ c restrictions on the
transfer of securities in the Company,
which is governed by its Articles of
Association and prevailing legislation.
The Company is not aware of any
agreements between holders of securities
that may result in restrictions on the
transfer of securities or that may result
in restrictions on voting rights.

VARIATION OF RIGHTS

Subject to applicable statutes, rights
attached to any class of share may be varied
with the written consent of the holders of
at least three-quarters in nominal value
of the issued shares of that class, or by a
special resolution passed at a separate
general meeting of the shareholders.

Rights and obligations attaching
to shares
Subject to the provisions of the Companies
Act 2006, any resolution passed by the
Company under the Companies Act 2006
and other shareholders’ rights, shares may
be issued with such rights and restrictions
as the Company may by ordinary resolution
decide, or (if there is no such resolution
or so far as it does not make speciﬁ c
provision) as the Board (as deﬁ ned in the
Articles) may decide. Subject to the
Articles, the Companies Act 2006 and
other shareholders’ rights, unissued shares
are at the disposal of the Board.

POWERS FOR THE COMPANY ISSUING
OR BUYING BACK ITS OWN SHARES

The Company was authorised by
shareholders, at the 2015 AGM, to purchase
in the market up to 10% of the Company’s
issued share capital, as permitted under the
Company’s Articles. Under this authority,

the Company purchased 31,647,148
ordinary Marks & Spencer shares between
8 July 2015 and 24 February 2016, at a
nominal value of £7,911,787.00 and a net
cost of £149,894,496.11. The 31,647,148
shares purchased represent 1.95% of the
issued share capital as at 24 February 2016.
All shares purchased were cancelled, and
not held in treasury.

This standard authority is renewable
annually; the directors will seek to renew
this authority at the 2016 AGM. It is the
Company’s present intention to cancel
any shares it buys back, rather than hold
them in treasury.

The directors were granted authority at the
2015 AGM to allot relevant securities up to
a nominal amount of £137,372,598. This
authority will apply until the conclusion
of the 2016 AGM. At this year’s AGM,
shareholders will be asked to grant an
authority to allot relevant securities (i) up
to a nominal amount of £135,313,863 and
(ii) comprising equity securities up to
a nominal amount of £270,627,726 (after
deducting from such limit any relevant
securities allotted under (i)), in connection
with an off er of a rights issue, (the Section
551 amount), such Section 551 amount to
apply until the conclusion of the AGM to be
held in 2017 or, if earlier, on 1 October 2017.

A special resolution will also be proposed
to renew the directors’ powers to make non
pre-emptive issues for cash in connection
with rights issues and otherwise up to a
nominal amount of £20,297,079. A special
resolution will also be proposed to renew
the directors’ authority to repurchase the
Company’s ordinary shares in the market.
The authority will be limited to a maximum
of £164 million ordinary shares and sets
the minimum and maximum prices which
will be paid.

INTERESTS IN VOTING RIGHTS

Information provided to the Company
pursuant to the Financial Conduct
Authority’s (FCA) Disclosure and
Transparency Rules (DTRs) is published
on a Regulatory Information Service and
on the Company’s website. As at 2 April
2016, the following information has
been received, in accordance with DTR5,
from holders of notiﬁ able interests in
the Company’s issued share capital.

The information provided below was
correct at the date of notiﬁ cation; however,
the date received may not have been
within the current ﬁ nancial year. It should
be noted that these holdings are likely
to have changed since the Company was
notiﬁ ed. However, notiﬁ cation of any
change is not required until the next
notiﬁ able threshold is crossed.

Notiﬁ able interests

Blackrock, Inc

Ordinary
shares

%
of capital

Nature of holding

92,601,221

5.68 Indirect (5.13%), Securities

lending (0.3%) & CFD (0.25%)

The Capital Group Companies, Inc
The Wellcome Trust

66,681,922
47,464,282

4.049 Indirect Interest
3.01 Direct Interest

Subsequent to year end, Blackrock, Inc have disclosed information in accordance with DTR5 on three occasions.
The most recent being 11 May 2016, disclosing a holding of 94,068,439 Ordinary shares (5.79%, broken down as follows:
Indirect, 4.85%; Securities lending, 0.54% & CFD, 0.39%).

75
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

DEADLINES FOR EXERCISING
VOTING RIGHTS

Votes are exercisable at a general meeting
of the Company in respect of which the
business being voted upon is being heard.
Votes may be exercised in person, by proxy,
or in relation to corporate members, by
corporate representatives. The Articles
provide a deadline for submission of proxy
forms of not less than 48 hours before the
time appointed for the holding of the
meeting or adjourned meeting. However,
when calculating the 48-hour period, the
directors can, and have, decided not to take
account of any part of a day that is not
a working day.

SIGNIFICANT AGREEMENTS –
CHANGE OF CONTROL

There are a number of agreements to
which the Company is party that take
eff ect, alter or terminate upon a change
of control of the Company following
a takeover bid. Details of the signiﬁ cant
agreements of this kind are as follows:

> The £400m Medium Term Notes issued
by the Company on 30 November 2009,
the £300m Medium Term Notes issued
by the Company on 6 December 2011
and the £400m; Medium Term Notes
issued by the Company on 12 December
2012 to various institutions (‘MTN’) and
under the Group’s £3bn euro Medium
Term Note (‘EMTN’) programme contain
an option such that, upon a change of
control event, combined with a credit
ratings downgrade to below sub-
investment level, any holder of an
MTN may require the Company to prepay
the principal amount of that MTN.

> The $500m US Notes issued by the
Company to various institutions on
6 December 2007 under Section 144a
of the US Securities Act contain an option
such that, upon a change of control
event, combined with a credit ratings
downgrade to below sub-investment
level, any holder of such a US Note may
require the Company to prepay the
principal amount of that US Note.

> The $300m US Notes issued by the
Company to various institutions on
6 December 2007 under Section 144a
of the US Securities Act contain an option
such that, upon a change of control
event, combined with a credit ratings
downgrade to below sub-investment
level, any holder of such a US Note may
require the Company to prepay the
principal amount of that US Note.

> The amended and restated £1.1bn

Credit Agreement dated 16 March 2016
(originally dated 29 September 2011)
between the Company and various
banks contains a provision such that,

upon a change of control event, unless
new terms are agreed within 60 days,
the facility under this agreement will be
cancelled with all outstanding amounts
becoming immediately payable with
interest; and

> The amended and restated Relationship

Agreement dated 6 October 2014
(originally dated 9 November 2004 as
amended on 1 March 2005), between
HSBC and the Company and relating to
M&S Bank, contains certain provisions
which address a change of control of
the Company. Upon a change of control
the existing rights and obligations of the
parties in respect of M&S Bank continue
and HSBC gains certain limited additional
rights in respect of existing customers
of the new controller of the Company.
Where a third-party arrangement is in
place for the supply of ﬁ nancial services
products to existing customers of the
new controller, the Company is required
to procure the termination of such
arrangement as soon as reasonably
practicable (whilst not being required
to do anything that would breach
any contract in place in respect of
such arrangement).

Where a third-party arrangement is so
terminated, or does not exist, HSBC gains
certain exclusivity rights in respect of
the sale of ﬁ nancial services products
to the existing customers of the new
controller. Where the Company undertakes
a re-branding exercise with the new
controller following a change of control
(which includes using any M&S brand in
respect of the new controller’s business or
vice versa), HSBC gains certain termination
rights (exercisable at its election) in respect
of the Relationship Agreement.

The Company does not have agreements
with any director or employee that would
provide compensation for loss of offi ce or
employment resulting from a takeover
except that provisions of the Company’s
share schemes and plans may cause
options and awards granted to employees
under such schemes and plans to vest on
a takeover.

EMPLOYEE INVOLVEMENT

We remain committed to employee
involvement throughout the business.
Employees are kept well informed of
the performance and strategy of the
Group through personal brieﬁ ngs, regular
meetings, email and broadcasts by the
Chief Executive and members of the Board
at key points in the year to all head offi ce
and distribution centre employees and
store management. Additionally, many of
our store colleagues can join the brieﬁ ngs
by telephone to hear directly from the
business. These types of communication

are supplemented by our employee
publications including ‘Your M&S’ magazine,
Plan A updates and DVD presentations.
More than 3,500 employees are elected
onto Business Involvement Groups (‘BIGs’)
across every store, distribution centre and
head offi ce location to represent their
colleagues in two-way communication and
consultation with the Company. They have
continued to play a key role in a wide variety
of business changes.

The 21st meeting of the European Works
Council (‘EWC’) (established in 1995) will
take place in September 2016. This Council
provides an additional forum for informing,
consulting and involving employee
representatives from the countries in
the European Economic Area. The EWC
includes representatives from France,
Belgium, The Netherlands, Czech Republic,
Slovakia, Greece, Hungary, Lithuania,
Latvia, Estonia, Poland, the Republic of
Ireland and the UK. The EWC has the
opportunity to be addressed by the
Chief Executive and other senior members
of the Company on issues that aff ect the
European business. This includes the
directors of International and multi-channel
and the director of Plan A, who all have an
impact across the European Community.

Directors and senior management regularly
attend the National Business Involvement
Group (‘BIG’) meetings. They visit stores and
discuss with employees matters of current
interest and concern to both employees
and the business through meetings with
local BIG representatives, speciﬁ c listening
groups and informal discussions. The
business has continued to engage with
employees and drive involvement. During
the year the Company introduced a
scheme called Give Me Five, which is a new
way of getting great ideas heard by our
leadership and turned into action. All
employees can put forward ideas for
improvements or change to any aspect
of the business, and a shortlist of the best
ideas are presented to a leadership panel,
which includes the CEO. The winning idea is
selected with a view to being implemented.

Share schemes are a long-established and
successful part of our total reward package,
encouraging and supporting employee
share ownership. In particular, around
24,800 employees currently participate
in Sharesave, the Company’s all employee
Save As You Earn Scheme. Full details of all
schemes are given on pages 106 and 107.

We have taken a speciﬁ c focus on
developing our mental wellbeing
programme this year for our employees,
our line managers and senior leaders.
Mental wellbeing was placed as a challenge
on our new senior leadership development
programme ‘Fit to lead the Future’ where
‘disruptive’ style learning on this agenda

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76
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: GOVERNANCE

OTHER DISCLOSURES
CONTINUED

inspired our most senior leaders to bring
about a step change to drive stronger
levels of mental wellbeing across our
business. Now a key part of our annual
wellbeing calendar, our mental wellbeing
week launched a bold awareness campaign
across the business including peer to peer
experience sharing, mental health training
and external expert speaker events.
We’ve also evolved our annual employee
‘Weight Loss Challenge’ to become a new
‘Wellbeing Challenge’ bringing a focus on
our physical health in parity with our mental
health. A new online hub of resources
including an essential line manager guide
on mental wellbeing gives our employees
access to help and support in both
developing their mental wellbeing and
resilience and to our free, conﬁ dential
team of mental wellbeing specialists
‘Livewellworkwell’.

Employees are able to interact with one
another and can gain access to information
about corporate projects, which link to
their personal health via our employee
social media platform Yammer.

We have websites for both our pension
schemes – the Deﬁ ned Contribution (Your
M&S Pension Saving Plan) and the Deﬁ ned
Beneﬁ t (The M&S Pension Scheme) – which
are fully accessible to both employees
and former employees that have retained
beneﬁ ts in either of those pension
schemes. Employees are updated from
time to time with any pertinent information
on their pension savings as appropriate.

EQUAL OPPORTUNITIES

The Group is committed to an active equal
opportunities policy from recruitment
and selection, through training and
development, performance reviews and
promotion to retirement. It is our policy

to promote an environment free from
discrimination, harassment and victimisation,
where everyone will receive equal treatment
regardless of gender, colour, ethnic or
national origin, disability, age, marital or civil
partner status, sexual orientation or religion.
All decisions relating to employment
practices will be objective, free from bias
and based solely upon work criteria and
individual merit. The Company is responsive
to the needs of its employees, customers
and the community at large. We are an
organisation which uses everyone’s talents
and abilities and where diversity is valued.
We were one of the ﬁ rst major companies to
remove the default retirement age in 2001
and have continued to see an increase in
employees wanting to work past the state
retirement age. Our oldest employee is 89
years old and joined the business at age 80.
In April 2016 the Company once again
featured in The Times Top 50 Employers for
Women, highlighting how equal
opportunities are available for all at M&S.

EMPLOYEES WITH DISABILITIES

It is our policy that people with disabilities
should have full and fair consideration for
all vacancies. During the year, we continued
to demonstrate our commitment to
interviewing those people with disabilities
who fulﬁ l the minimum criteria, and
endeavouring to retain employees in the
workforce if they become disabled during
employment. We will actively retrain and
adjust their environment where possible
to allow them to maximise their potential.
We continue to work with external
organisations to provide workplace
opportunities through our innovative Marks
& Start scheme and by working closely with
JobCentre Plus. The Marks & Start scheme
was introduced into our distribution centre
at Castle Donington in 2012/13, where we

TOTAL GLOBAL M&S GREENHOUSE GAS EMISSIONS 2015/16

work with Remploy to support people with
disabilities and health conditions into work.

GROCERIES SUPPLY CODE
OF PRACTICE

The Groceries (Supply Chain Practices)
Market Investigation Order 2009 (‘Order’)
and The Groceries Supply Code of Practice
(‘GSCOP’) impose obligations on M&S
relating to relationships with its suppliers
of groceries. Under the Order and GSCOP,
M&S is required to submit an annual
compliance report to the Audit Committee
for approval and then to the Competition
and Markets Authority and Groceries
Code Adjudicator.

M&S submitted its report to the Audit
Committee on 18 May 2016 covering the
period from 1 April 2015 to 2 April 2016.
In accordance with the Order, a summary
of that compliance report is set out below.

M&S believes that it has complied in full with
GSCOP and the Order during the relevant
period. No formal disputes have arisen
during the reporting period. Two allegations
regarding potential breaches of GSCOP
were made by suppliers during the relevant
period, but both have been resolved.

M&S operates systems and controls to
ensure compliance with the Order and
GSCOP including the following:

> The terms and conditions which govern
the trading relationship between M&S
and those of its suppliers that supply
groceries to M&S incorporate GSCOP;

> New suppliers are issued with information

as required by the Order;

> M&S has a Code Compliance Offi cer as
required under the Order, supported
by our in-house legal department; and

The disclosures required by law and additional information relating to the Group’s greenhouse gas emissions are included in the table
below. For full details of calculations and performance against our 2006/07 voluntary baseline, see the 2016 Plan A Report.

Direct emissions (scope 1)
Indirect emissions from energy (scope 2)
Total statutory emissions (scope 1 and 2)
Transport, energy T&D, waste and travel emissions (scope 3)
Total gross/location-based emissions
Carbon intensity measure (per 1,000 sq ft of salesﬂ oor)
Green tariff s and bio-methane procured
Remaining market-based emissions
Carbon off sets
Total net operational emissions

2015/16
000 tonnes

2013/14
000 tonnes

182
328
510
56
566
29
299
266
266
0

168
340
508
59
567
30
302
265
265
0

%
change

+8
-4
Level
-5
Level
-3
-1
Level
Level
Level

Emissions are from operationally controlled activities in accordance WRI/WBCSD GHG Reporting Protocols (Revised edition) and 2014
Scope 2 Guidance using 2015 DEFRA/DECC conversion factors. As these emissions account for less than 10% of M&S’s total carbon
footprint we also engage with suppliers and customers to address the most signiﬁ cant sources.

77
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

> Employee training on GSCOP is provided,
including annual refresher programmes
and new starter training.

POLITICAL DONATIONS

No political donations were made during
the year ended 2 April 2016. M&S has
a policy of not making donations to political
organisations or independent election
candidates or incurring political
expenditure anywhere in the world as
deﬁ ned in the Political Parties, Elections
and Referendums Act 2000.

GOING CONCERN

In adopting the going concern basis for
preparing the ﬁ nancial statements, the
directors have considered the business
activities as set out on pages 02 to 21 as
well as the Group’s principal risks and
uncertainties as set out on pages 28 and 29.
Based on the Group’s cash ﬂ ow forecasts
and projections, the Board is satisﬁ ed that
the Group will be able to operate within the
level of its facilities for the foreseeable
future. For this reason the Board considers
it appropriate for the Group to adopt the
going concern basis in preparing its
ﬁ nancial statements.

See Note 20 to the Financial Statements

for more information on our Facilities

LONG-TERM VIABILITY STATEMENT

The directors have assessed the prospects
of the Company over a three-year period
to 30 March 2019. This has taken into
account the business model, strategic
aims, risk appetite, and principal risks and
uncertainties, along with the Company’s
current ﬁ nancial position. Based on
this assessment, the directors have a
reasonable expectation that the Company
will be able to continue in operation and
meet its liabilities as they fall due over the
three-year period under review.

See our approach to assessing long-term

viability on p47

AUDITOR

Auditor Resolutions to reappoint Deloitte
LLP as auditor of the Company and to
authorise the Audit Committee to
determine their remuneration will be
proposed at the 2016 AGM.

ANNUAL GENERAL MEETING

The AGM of Marks and Spencer Group plc
will be held at Wembley Stadium, London on
12 July 2016 at 11am. The Notice of Meeting
is given, together with explanatory notes, in
a booklet which accompanies this report.

the year and provide shareholders with
the information necessary to assess the
Group’s position, performance, business
model and strategy. This cannot be
achieved by merely reviewing the ﬁ nal
document at the end of the preparation
process. The Board ensured that its
requirements were clearly communicated
from the outset to each of the
departments involved in the production
of the Annual Report.

The Board has advised that the narrative
reports should contain the key information
needed by investors and other users of the
report and should avoid being promotional
in nature. Furthermore, the narrative
reports in the front and the accounting
information in the back of the report should
be consistent and the teams involved in
its production work closely together to
achieve this. For an independent opinion,
the Board also requested the Audit
Committee review the Annual Report and
provide feedback. The Committee’s opinion
on whether the report is fair, balanced and
understandable is on pages 44 and 45.

The directors are also responsible for
preparing the Annual Report, the
Remuneration Report and the ﬁ nancial
statements in accordance with applicable
law and regulations. Company law requires
the directors to prepare ﬁ nancial
statements for each ﬁ nancial year. Under
that law, the directors have prepared the
Group and Company ﬁ nancial statements
in accordance with International Financial
Reporting Standards (IFRSs) as adopted by
the EU. Under company law, the directors
must not approve the ﬁ nancial statements
unless they are satisﬁ ed that they give a
true and fair view of the state of aff airs of
the Group and the Company and of the
proﬁ t or loss of the Group and the
Company for that period. In preparing
these ﬁ nancial statements, the directors
are required to:

> Select suitable accounting policies
and then apply them consistently;

> Make judgements and accounting
estimates that are reasonable
and prudent;

> State whether applicable IFRSs

(as adopted by the EU) have been
followed, subject to any material
departures disclosed and explained
in the ﬁ nancial statements; and

> Prepare the ﬁ nancial statements on
a going concern basis unless it is
inappropriate to presume that the
Company will continue in business.

at any time and with reasonable accuracy,
the ﬁ nancial position of the Company and
the Group and to enable them to ensure
that the ﬁ nancial statements and the
Remuneration Report comply with the
Companies Act 2006 and, as regards the
Group ﬁ nancial statements, Article 4 of the
IAS Regulation. They are also responsible
for safeguarding the assets of the Group
and the Company and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
The directors are responsible for the
maintenance and integrity of the
Company’s website. Legislation in the
UK governing the preparation and
dissemination of ﬁ nancial statements may
diff er from legislation in other jurisdictions.

Each of the directors, whose names and
functions are listed on pages 32 and 33
of the Annual Report, conﬁ rm that, to the
best of their knowledge:

> The Group ﬁ nancial statements, which

have been prepared in accordance with
IFRSs as adopted by the EU, give a true
and fair view of the assets, liabilities,
ﬁ nancial position and proﬁ t of the Group;

> The Strategic Report and the Directors’
Report contained in this report include
a fair review of the development and
performance of the business and the
position of the Group, together with
a description of the principal risks and
uncertainties that it faces; and

> The Annual Report, taken as a whole,
is fair, balanced and understandable,
and provides the necessary information
for shareholders to assess the Group’s
position, performance, business model
and strategy.

DISCLOSURE OF INFORMATION
TO AUDITORS

Each director conﬁ rms that, so far as
he/she is aware, there is no relevant audit
information of which the Company’s
auditors are unaware and that each director
has taken all the steps that he/she ought
to have taken as a director to make
himself/ herself aware of any relevant
audit information and to establish that
the Company’s auditors are aware of that
information.

The Directors’ Report was approved
by a duly authorised committee of the
Board of Directors on 24 May 2016
and signed on its behalf by

DIRECTORS’ RESPONSIBILITIES

The Board is of the view that the Annual
Report should be truly representative of

The directors are responsible for keeping
adequate accounting records that are
suffi cient to show and explain the
Company’s transactions and disclose,

Amanda Mellor
Group Secretary
London, 24 May 2016

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78
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF MARKS AND SPENCER GROUP PLC

OPINION ON FINANCIAL STATEMENTS OF MARKS AND SPENCER GROUP PLC

IN OUR OPINION:

The ﬁ nancial statements give a true and
fair view of the state of the Group’s and
of the parent Company’s aff airs as at
2 April 2016 and of the Group’s proﬁ t
for the 53 weeks then ended.

The Group ﬁ nancial statements have
been properly prepared in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by the
European Union.

The parent Company ﬁ nancial
statements have been properly prepared
in accordance with IFRS as adopted by
the European Union and as applied in
accordance with the provisions of the
Companies Act 2006.

The ﬁ nancial statements have been
prepared in accordance with the
requirements of the Companies Act
2006 and, as regards the Group
ﬁ nancial statements, Article 4 of the
IAS Regulation.

The ﬁ nancial statements comprise the
Consolidated Income Statement, the
Consolidated Statement of Comprehensive
Income, the Consolidated and Company
Statements of Financial Position, the
Consolidated and Company Statements
of Changes in Equity, the Consolidated
and Company statements of cash ﬂ ows,
the reconciliation of net cash ﬂ ow to
movement in net debt note, and the related
notes 1 to 30. The ﬁ nancial reporting
framework that has been applied in their
preparation is applicable law and IFRSs as
adopted by the European Union and, as
regards the parent company ﬁ nancial
statements, as applied in accordance with
the provisions of the Companies Act 2006.

SEPARATE OPINION IN RELATION TO IFRSs AS ISSUED BY THE IASB

As explained in note 1 to the ﬁ nancial
statements, in addition to complying
with its legal obligation to apply IFRSs
as adopted by the European Union, the
Group has also applied IFRSs as issued
by the International Accounting Standards
Board (IASB).

In our opinion the Group ﬁ nancial
statements comply with IFRSs as issued
by the IASB.

GOING CONCERN AND THE DIRECTORS’ ASSESSMENT OF THE PRINCIPAL RISKS THAT WOULD THREATEN THE SOLVENCY
OR LIQUIDITY OF THE GROUP

As required by the Listing Rules we have
reviewed the directors’ statement regarding
the appropriateness of the going concern
basis of accounting contained within note
1 to the ﬁ nancial statements and the
directors’ statement on the longer-term
viability of the company contained within
contained within the “Other disclosures”
section on page 77.

We have nothing material to add or draw
attention to in relation to:

> The directors’ conﬁ rmation on page

27 that they have carried out a robust
assessment of the principal risks facing
the Group, including those that would
threaten its business model, future
performance, solvency or liquidity;

> The disclosures on pages 27-29 that
describe those risks and explain how
they are being managed or mitigated;

> The directors’ statement in note 1 to the
ﬁ nancial statements about whether they
considered it appropriate to adopt the
going concern basis of accounting in
preparing them and their identiﬁ cation of
any material uncertainties to the Group’s
ability to continue to do so over a period
of at least twelve months from the date
of approval of the ﬁ nancial statements;

> The directors’ explanation on page 47 as

to how they have assessed the prospects
of the Group, over what period they have
done so and why they consider that
period to be appropriate, and their

statement as to whether they have
a reasonable expectation that the
Group will be able to continue in
operation and meet its liabilities as
they fall due over the period of their
assessment, including any related
disclosures drawing attention to any
necessary qualiﬁ cations or assumptions.

We agreed with the directors’ adoption
of the going concern basis of accounting
and we did not identify any such material
uncertainties. However, because not
all future events or conditions can be
predicted, this statement is not a guarantee
as to the Group’s ability to continue as
a going concern.

INDEPENDENCE

We are required to comply with the
Financial Reporting Council’s Ethical
Standards for Auditors and we conﬁ rm
that we are independent of the Group and
we have fulﬁ lled our other ethical

responsibilities in accordance with those
standards. We also conﬁ rm we have not
provided any of the prohibited non-audit
services referred to in those standards.

79
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT

THE KEY RISKS WE IDENTIFIED ARE:

1 Presentation of non-GAAP measures

2 Impairment of property, plant and
equipment, and intangible assets

3 Inventory valuation and provisions

4 Revenue recognition –

customer returns

5 Supplier rebates

6 Retirement beneﬁ ts

The assessed risks of material
misstatement are those that had the
greatest eff ect on our audit strategy,
the allocation of resources in the audit
and directing the eff orts of the
engagement team.

In our previous year’s report, our audit
report included:

> Impairment of store assets; however
in the current year audit our risk of
impairment includes all property, plant
and equipment (PP&E) and intangible
assets as a result of the factors
impacting performance in certain
parts of the Group; and

> Franchise revenues and receivables
within our revenue recognition risk,
which we have not included in our
current year report based on our
knowledge of the franchise agreement
terms and an assessment of the risk of
franchise partners defaulting on debt.

The description of risks below should be
read in conjunction with the signiﬁ cant
issues considered by the Audit Committee
discussed on pages 44 and 45.

These matters were addressed in the
context of our audit of the ﬁ nancial
statements as a whole, and in forming our
opinion thereon, and we do not provide
a separate opinion on these matters.

1 PRESENTATION OF

NON-GAAP MEASURES

RISK DESCRIPTION

The presentation of income and costs
within non-GAAP measures (to derive
‘underlying proﬁ t before tax’) under IFRS
is judgemental, with IFRS only requiring
the separate presentation of material
items. Judgement is exercised by
management in determining the
classiﬁ cation of items as non-underlying.

In the Group’s reported results, signiﬁ cant
adjustments have been made to statutory
proﬁ t before tax of £489 million to derive
underlying proﬁ t before tax of £690
million. Explanations of each adjustment
are set out in notes 1 and 5 to the
ﬁ nancial statements, and summarised
in the graphic on the right.

£m

800

600

400

200

£50m

£27m

£102m

£489m

£24m

£10m

£2m

£(5)m

£(9)m £690m

Statutory
proﬁt
before tax

International

M&S
Bank

UK
store
review

UK
impairments

Loss
on
property
disposals

IAS39
fair value
loss

Net gain
on
acquisition

Net
restructuring
costs

Underlying
proﬁt
before tax

In calculating the reported non-GAAP measures, there are two risks which may result
in the underlying proﬁ t measure being misstated and therefore not being reliable to
users of the ﬁ nancial statements:

> Items may be included in the non-
underlying adjustments which are
underlying or recurring items, distorting
the reported underlying earnings; and

> Items may be omitted from the

non-underlying adjustments which
are material and one-off in nature.

HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE RISK

We evaluated the appropriateness of the
inclusion of items, both individually and
in aggregate, within non-underlying proﬁ ts,
including assessing the consistency of
items included year on year and ensuring
adherence to IFRS requirements and
latest Financial Reporting Council (“FRC”)
guidance. We also agreed these items
to supporting evidence.

We assessed all items, either highlighted
by management or identiﬁ ed through
the course of our audit, which were
regarded as one-off but included within
underlying earnings to ensure that these
are not material either individually or in
aggregate. For all adjustments recorded in
calculating underlying proﬁ ts, we
discussed the appropriateness of the item
with the Audit Committee and any
disclosure considerations.

Key observations We are satisﬁ ed that the
items excluded from underlying earnings
and the related disclosure of these items
in the ﬁ nancial statements is appropriate.

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80
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT
CONTINUED

OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT CONTINUED

2 Impairment of property,

plant and equipment (PP&E)
and intangible assets

RISK DESCRIPTION

As described in the Accounting Policies
in note 1 and in notes 14 and 15 to the
Financial Statements, the Group held
£5,027 million (2015: £5,031 million) of
property, plant and equipment and
£803 million (2015: £858 million) of
intangible assets at 2 April 2016.

There is a risk that the carrying value
of these assets may be higher than the
recoverable amount, particularly in light
of recent trading performance in certain
parts of the Group. Management has
performed an assessment of indicators of
impairment for PP&E and a full impairment
review for goodwill and brand intangibles.
As a result, an impairment charge of £160
million has been recorded.

When a review for impairment is
conducted, the recoverable amount
is determined based on value in use
calculations which rely on the directors’
assumptions and estimates of future
trading performance.

The key assumptions applied by the
directors in the impairment reviews are:

> Country-speciﬁ c discount rates;

> Future revenue growth;

> Trading margin; and

> Store costs, including rent, staff payroll

costs and general operating costs.

The directors consider that each retail
store constitutes its own cash generating
unit (‘CGU’), with the exception of the
outlet stores, which are used to clear old
season general merchandise stock at
a discount, and certain strategic stores.

The outlet stores are considered to
represent one CGU in aggregate and
strategic stores are evaluated as part
of a country-wide impairment review.

The Group’s accounting policy sets out
a relevant shelter period for new stores
to be taken into account when assessing
indicators of impairment during initial
years of trading to enable the store to
establish itself in the market.

Non-current asset analysis (£m)

334

803

851

5,027

Intangible assets

PP&E

Retirement beneﬁt asset

Other assets

Intangibles

Goodwill & Brand –
per una

Goodwill –Czech

Goodwill – India

Goodwill – Hungary

Goodwill – UK

Brands – M&S Mode and
other

Computer software

Current
year
Impairment
£m

Closing
value £m

–

£88m

£16m

–

£3m

–

£32m

£49m

–

£7m

–

£6m

–

£702m

Total intangibles

£100m

£803m

PP&E

Land and buildings

£30m £2,595m

Fixtures, ﬁ tting &
equipment

£28m £2,363m

PP&E under construction

£2m

£69m

Total PP&E

£60m £5,027m

HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE RISK

We considered the appropriateness of
the methodology applied by the directors
in calculating the impairment charges, and
the judgements applied in determining
the CGUs of the business. In addition, we
assessed the design and implementation
of controls in respect of the impairment
review process and considered the
adequacy of disclosures made in the
Financial Statements.

We assessed the impairment models
and calculations by:

> Checking the mechanical accuracy

of the impairment models;

> Assessing the discount rates applied
to the impairment reviews for each
country with support from our internal
valuations specialist and comparing the
rates to our internal benchmark data;

> Comparing forecast growth rates

to economic data; and

the trading plans and actions being taken
on an individual store basis.

> Evaluating the information included
in the impairment models through
our knowledge of the business gained
through reviewing trading plans,
strategic initiatives, and meeting
with senior trading managers from
key categories and our retail
industry knowledge.

We assessed the appropriateness of the
shelter period for each store opened within
that time frame, and compared the original
investment case for the store against its
current trading performance. Where stores
were trading signiﬁ cantly below the
original case, we considered the evidence
available to support future improvements
in performance, speciﬁ cally by assessing

Key observations We assessed the
level of impairment recorded in respect
of the international business and are
satisﬁ ed that the judgements applied
by management are appropriate. We
speciﬁ cally assessed the impairment
calculations of international goodwill and
brand intangibles and concluded that the
level of impairments recorded in the year
are appropriate.

For the UK store assets, we concluded that
the assumptions applied in the impairment
calculations were appropriate, including
the assumptions applied to new store
shelter periods, and no additional
impairments were identiﬁ ed from the
work performed above.

81
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT CONTINUED

3 Inventory valuation and

provisions

RISK DESCRIPTION

At 2 April 2016, the Group held inventories
of £800 million (2015: £798 million).
As described in the Accounting Policies
in note 1 to the Financial Statements,
inventories are carried at the lower of

cost and net realisable value. As a result,
the directors apply judgement in
determining the appropriate provisions
for obsolete stock based upon a detailed
analysis of old season inventory, net

realisable value below cost based upon
plans for inventory to go into sale and
stock loss based upon the run rate from
recent inventory counts.

HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE RISK

We obtained assurance over the
appropriateness of management’s
assumptions applied in calculating the
value of the inventory provisions by:

> Checking the eff ectiveness of key

inventory controls operating across
the UK business, including those at 13
distribution centres and 18 retail stores;

> Attending inventory counts at 13

distribution centres and 13 retail stores;

> Checking for a sample of individual
products that invoiced costs have
been correctly recorded and that the
allocation of directly attributable costs
has been correctly calculated;

4 Revenue recognition – gift cards,

loyalty schemes and returns

RISK DESCRIPTION

As described in the Accounting Policies
in note 1 to the Financial Statements, the
Group’s revenue recognition policies
require the directors to make a number
of assumptions in determining the
reported revenue for the period. The key
assumptions are:

> Gift cards, vouchers and loyalty

schemes – the directors apply an

> Comparing the net realisable value,

obtained through a detailed review of
sales subsequent to the year-end using
audit analytics, to the cost price of
inventories to check for completeness
of the associated provision;

We evaluated consumer trends identiﬁ ed
through benchmarking and external
market data to challenge the assumptions
underlying sales forecasts by category
to assess the completeness of provisions
for obsolescence.

> Performing audit analytics on

stock holding and movement data to
identify product lines with indicators
of low stock turn or signiﬁ cant levels
of aged stock; and

> Meeting with buyers to validate the

assumptions applied by management
compared to the current purchasing
strategy and ranging plans.

Key observations The results of
our testing were satisfactory and
we concur that the level of inventory
provisions is appropriate.

expected redemption rate to the total
value of gift cards, vouchers and loyalty
points in issue based on historic trends.

> Returns – customers are entitled to
return products up to 35 days after
purchase, giving rise to a risk that sales
recognised during the period will be
reversed in the next ﬁ nancial period.
The directors apply judgement in

determining the provision required
for returns based on actual sales data
and recent product return rates.
Returns from online sales are
commonly at a higher level than
traditional store retailing, resulting
in this judgement becoming more
signiﬁ cant in determining the level
of provision required.

HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE RISK

We considered each revenue-impacting
provision individually, and assessed the
appropriateness of the assumptions and
judgements applied. We assessed the
design and implementation of controls in
respect of these revenue judgements, in
addition to testing the eff ectiveness of
key revenue controls operating across the
UK business.

For the key assumptions used in the gift
card and voucher, and loyalty scheme
provisions, we assessed the historic rates
of redemption and compared these to the
directors’ judgements.

We assessed the appropriateness of the
methodology applied in calculating the
returns provision, and compared the
calculated provision to the actual level of

returns recorded subsequent to the
period end.

Key observations We are satisﬁ ed that the
key assumptions applied in calculating the
returns, gift card, voucher and loyalty
scheme provisions are appropriate.

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82
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT
CONTINUED

OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT CONTINUED

5 Supplier rebates

RISK DESCRIPTION

As described in the Accounting Policies in
note 1 and note 17 to the Financial
Statements, the Group recognises a
reduction in cost of sales as a result of
amounts receivable from suppliers,
primarily comprising contributions in
relation to promotions in the Food business,
strategic volume moves and some annual

volume-based rebates. The majority of
these contributions tend to be small in unit
value but high in volume and span relatively
short periods of time, although these can
be across the ﬁ nancial year end. There are
a small number of larger arrangements,
which relate to multi-year periods.

Judgement is required in determining the
period over which the reduction in cost of
sales should be recognised, requiring both
a detailed understanding of the contractual
arrangements themselves as well as
complete and accurate source data to
apply the arrangements to.

HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE RISK

We tested that amounts recognised were
accurate and recorded in the correct period
based on the contractual performance
obligations by agreeing a sample to
individual supplier agreements. We also
conducted interviews with a range of
buyers and trading managers. In addition,
we circularised a sample of 28 suppliers to
test whether the arrangements recorded
were complete.

We tested the completeness and accuracy
of the systematic inputs to the calculations
for recording supplier rebates and
discounts by agreement to supporting

evidence, including volume data and
promotion dates.

We performed revenue and margin analysis
to understand detailed trends by product
category in order to identify apparent
anomalies which may indicate potential
rebate income errors. Such anomalies were
investigated to assess whether they were
indicative of a mis-application of contractual
terms or other calculation errors.

We also tested a sample of invoices and
debit notes raised post-year end to test the
completeness and accuracy of accrued

supplier income at 2 April 2016. In addition
we tested the recoverability of the amounts
due at the year end by agreeing the
amounts to subsequent settlement.

Key observations The results of our
testing were satisfactory. We consider the
disclosure given around supplier rebates to
provide an accurate understanding of the
types of rebate income received and the
impact on the statement of ﬁ nancial
position as at 2 April 2016.

6 Retirement beneﬁ ts

RISK DESCRIPTION

As described in the Accounting Policies
in note 1 and in note 11 to the Financial
Statements the Group has a deﬁ ned
beneﬁ t pension plan for its UK employees,
which was closed to new entrants with
eff ect from 1 April 2002, and a funded
deﬁ ned beneﬁ t pension scheme in the
Republic of Ireland, where no new beneﬁ ts
have accrued since 31 October 2013.

scheme assets of £8,515 million (2015:
£8,597 million), scheme liabilities of £7,682
million (2015: £8,136 million) and unfunded
retirement beneﬁ ts of £9 million (2015: £12
million). The Group net retirement beneﬁ t
asset has shown signiﬁ cant volatility, as the
valuation is sensitive to changes in key
assumptions such as the discount rate,
inﬂ ation and mortality estimates.

At 2 April 2016, the Group recorded a net
retirement beneﬁ t asset of £824 million
(2015: £449 million), being the net of

The setting of these assumptions is
complex and an area of signiﬁ cant
judgement; changes in any of these

assumptions can lead to a material
movement in the net surplus. The increase/
(decrease) in scheme surplus caused by
a change in each of the key assumptions is
set out below:

A decrease in the discount
rate of 0.25%

A decrease in the inﬂ ation
rate of 0.25%

A decrease in the average life
expectancy of one year

2016
£m

2015
£m

(90)

(70)

300

330

HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE RISK

We evaluated the directors’ assessment of
the assumptions made in the valuation of
the scheme liabilities, and evaluated the
information contained within the actuarial
valuation reports for each scheme. We
assessed the design and implementation
of controls in respect of the pension
scheme valuation process.

with support from our own actuarial
specialists, we considered the process
applied by the Group’s actuaries, the scope
of the valuation performed and the key
assumptions applied and evaluated their
expertise. We benchmarked and performed
a sensitivity analysis on the key variables in
the valuation model, including:

We tested the membership census data
used in the valuation of the schemes and,

> Salary increases;

> Inﬂ ation rates;

> Mortality rates; and

> Discount rates.

Key observations From the work
performed above we are satisﬁ ed that
all assumptions applied in respect of the
valuation of the scheme assets and
liabilities are appropriate.

83
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

OUR APPLICATION OF MATERIALITY

We determined materiality for the
Group to be £30 million.

We reported all audit diff erences
in excess of £1 million.

We deﬁ ne materiality as the magnitude of
misstatement in the ﬁ nancial statements
that makes it probable that the economic
decisions of a reasonably knowledgeable
person would be changed or inﬂ uenced.
We use materiality both in planning the
scope of our audit work and in evaluating
the results of our work.

We determined materiality for the Group
to be £30 million, based on a calculation
of 5% of proﬁ t before tax adjusted for
certain non-underlying items due to the
nature and signiﬁ cance of these non-
recurring items.

The adjusted proﬁ t used in our
determination of materiality was £587
million, which is £98 million higher than
statutory proﬁ t before tax of £489 million.
The items we excluded from our calculation
are listed below, and explained further
in note 5 to the ﬁ nancial statements:

> Store closure costs and impairments

in the international business –
£32 million charge;

> Impairment of goodwill in

the international business –
£19 million charge;

> Other international impairments –

£52 million; and

> Net gain on acquisition of joint

venture holding Bradford warehouse
of £5 million.

Our materiality of £30 million represented
6% of statutory proﬁ t before tax. For the
previous year, we determined materiality
for the Group to be £32 million based on
5% of proﬁ t before tax without adjustment
for non-underlying items.

Materiality

The materiality applied by the component
auditors (see below) ranged from
£2 million to £27 million (2015: £2 million
to £30 million), depending on the scale
of the component’s operations and
our assessment of risks speciﬁ c to
each location.

We agreed with the Audit Committee
that we would report to the Committee
all audit diff erences in excess of £1 million
(2015: £1 million) as well as diff erences
below that threshold that, in our view,
warranted reporting on qualitative grounds.
We also report to the Audit Committee on
disclosure matters that we identiﬁ ed when
assessing the overall presentation of the
ﬁ nancial statements.

Group materiality
£30m

Component
materiality range
£2m to £27m

Audit Committee
reporting threshold
£1m

PBT

Group materiality

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84
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT
CONTINUED

AN OVERVIEW OF THE SCOPE OF OUR AUDIT

We performed a full scope audit on
seven components representing 99%
of the Group’s revenue, 90% of the
Group’s proﬁ t before tax and 90% of
the Group’s net assets.

During our ﬁ rst year as auditor of
the Group, we visited all signiﬁ cant
locations. For our second year, we have
implemented a rotational approach to
these visits.

Our Group audit was scoped by obtaining
an understanding of the Group and its
environment, including Group-wide
controls, and assessing the risks of
material misstatement at the Group level.
A summary of the Group’s retail operations
is set out below (including the UK business).

No. of territories

2015/16

2014/16

Wholly owned retail businesses

Retail joint ventures

Retail franchise operations*

Website only territories

Total

includes two territories where wholly owned businesses
also operate

Based on our assessment we focused
our Group audit scope primarily on the
audit work at seven wholly owned locations:
United Kingdom, Republic of Ireland,
Czech Republic, France, Greece, China and
Hong Kong, and the joint venture in India.
All of these were subject to a full audit,
with the exception of China where speciﬁ c
audit procedures were performed on
signiﬁ cant balances. Last year, a full scope
audit was performed in Turkey; however
analytical review procedures were
completed for the current year as Turkey
is not a signiﬁ cant element of the Group’s
business. This year, the Group audit team
conducted a full scope audit in France
due to the increasing signiﬁ cance of the
business in the Group’s reported results.

These components were selected to
provide an appropriate basis for
undertaking audit work to address the
risks of material misstatement identiﬁ ed
above. All other wholly owned and joint
venture businesses were subject to
analytical review procedures. Whilst we
audit the revenues received by the Group
from franchise operations, which account
for 3% (2015: 3%) of the Group’s revenue,
we do not audit the underlying franchise
operations as part of our Group audit.

At the parent entity level we also tested
the consolidation process and carried
out analytical procedures to conﬁ rm our
conclusion that there were no signiﬁ cant
risks of material misstatement of the
aggregated ﬁ nancial information of the
remaining components not subject to a
full audit.

REVENUE

PROFIT
BEFORE TAX

NET ASSETS

Full scope
audit

Speciﬁc audit
procedures

Analytical
procedures

Proﬁ t
before
tax

Net
assets

Revenue

Full scope audit

99%

90%

Speciﬁ c audit
procedures

Analytical procedures

The most signiﬁ cant component of the
Group is its retail business in the United
Kingdom, which accounts for 90% (2015:
89%) of the Group’s reported revenue of
£10,555 million, and generates operating
proﬁ t of £627 million (2015: £641 million)
which is off set by operating losses from the
international segment resulting in a Group
operating proﬁ t of £584 million (2015: £701

OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006

IN OUR OPINION:

> The part of the Directors’ Remuneration
Report to be audited has been properly
prepared in accordance with the
Companies Act 2006; and

> The information given in the Strategic

Report and the Directors’ Report for the
ﬁ nancial year for which the ﬁ nancial
statements are prepared is consistent
with the ﬁ nancial statements.

million). The Group audit team performs
the audit of the UK business without the
involvement of a component team.
During the course of our audit, the Group
audit team conducted 13 distribution
centre and 18 retail store visits in the UK
to understand the current trading
performance and, at certain locations,
perform tests of internal controls and
validate levels of inventory held.

As part of our ﬁ rst year audit, last year a
senior member of the Group audit team
visited each of the signiﬁ cant components.
For this year, and going forwards, we have
developed a programme of planned visits
so that a senior member of the Group audit
team visits each of the components subject
to a full audit or speciﬁ c audit procedures
at least once every two years, and the most
signiﬁ cant of them at least once a year.
The programme of visits are set out below,
with future years subject to change as the
Group’s operations continue to evolve.

2015
(Last
year)

2016
(This
year)

2017

2018

Component

China

Hong Kong

India

Republic of
Ireland

Czech
Republic

Greece

In addition to our programme of planned
visits, we send detailed instructions to our
component audit teams, include them in
our team brieﬁ ngs, discuss their risk
assessment, attend closing meetings,
and review their audit working papers.

85
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

Adequacy of explanations received
and accounting records
Under the Companies Act 2006 we are
required to report to you if, in our opinion:

> We have not received all the information

and explanations we require for our
audit; or

> Adequate accounting records have

not been kept by the parent company,
or returns adequate for our audit have
not been received from branches not
visited by us; or

> The parent company ﬁ nancial

statements are not in agreement with
the accounting records and returns.

We have nothing to report in respect of
these matters.

Directors’ remuneration
Under the Companies Act 2006 we are also
required to report if in our opinion certain
disclosures of directors’ remuneration have

not been made or the part of the Directors’
Remuneration Report to be audited is not
in agreement with the accounting records
and returns. We have nothing to report
arising from these matters.

Corporate Governance Statement
Under the Listing Rules we are also required
to review part of the Corporate Governance
Statement relating to the company’s
compliance with certain provisions of the
UK Corporate Governance Code. We have
nothing to report arising from our review.

Our duty to read other information in
the Annual Report
Under International Standards on Auditing
(UK and Ireland), we are required to report
to you if, in our opinion, information in the
annual report is:

> Materially inconsistent with the

information in the audited ﬁ nancial
statements; or

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR

> Apparently materially incorrect based
on, or materially inconsistent with, our
knowledge of the Group acquired in the
course of performing our audit; or

> Otherwise misleading.

In particular, we are required to
consider whether we have identiﬁ ed any
inconsistencies between our knowledge
acquired during the audit and the directors’
statement that they consider the annual
report is fair, balanced and understandable
and whether the annual report
appropriately discloses those matters that
we communicated to the audit committee
which we consider should have been
disclosed. We conﬁ rm that we have not
identiﬁ ed any such inconsistencies or
misleading statements.

As explained more fully in the Directors’
Responsibilities Statement, the directors
are responsible for the preparation of the
ﬁ nancial statements and for being satisﬁ ed
that they give a true and fair view. Our
responsibility is to audit and express an
opinion on the ﬁ nancial statements in
accordance with applicable law and
International Standards on Auditing
(UK and Ireland). We also comply with
International Standard on Quality Control 1

(UK and Ireland). Our audit methodology
and tools aim to ensure that our quality
control procedures are eff ective,
understood and applied. Our quality
controls and systems include our dedicated
professional standards review team and
independent partner reviews.

This report is made solely to the company’s
members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act

2006. Our audit work has been undertaken
so that we might state to the company’s
members those matters we are required to
state to them in an auditor’s report and for
no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other than
the company and the company’s members
as a body, for our audit work, for this report,
or for the opinions we have formed.

SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS

An audit involves obtaining evidence about
the amounts and disclosures in the ﬁ nancial
statements suffi cient to give reasonable
assurance that the ﬁ nancial statements are
free from material misstatement, whether
caused by fraud or error. This includes an
assessment of:

> Whether the accounting policies are
appropriate to the Group’s and the
company’s circumstances and have

been consistently applied and
adequately disclosed;

> The reasonableness of signiﬁ cant

accounting estimates made by the
directors; and

> The overall presentation of the

ﬁ nancial statements.

In addition, we read all the ﬁ nancial and
non-ﬁ nancial information in the annual

report to identify material inconsistencies
with the audited ﬁ nancial statements
and to identify any information that is
apparently materially incorrect based on,
or materially inconsistent with, the
knowledge acquired by us in the course
of performing the audit. If we become
aware of any apparent material
misstatements or inconsistencies we
consider the implications for our report.

Ian Waller (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
24 May 2016

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86
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

Revenue

53 weeks ended 2 April 2016

52 weeks ended 28 March 2015

Notes

2, 3

Underlying
£m

10,555.4

Non-underlying
£m

Total
£m

Underlying
£m

Non-underlying
£m

Total
£m

–

10,555.4

10,311.4

–

10,311.4

Operating proﬁ t

2, 3, 5

784.9

(200.8)

584.1

762.5

(61.2)

701.3

Finance income
Finance costs

Proﬁ t before tax
Income tax expense
Proﬁ t for the year

Attributable to:
Owners of the parent
Non-controlling interests

Basic earnings per share
Diluted earnings per share

–
–

(200.8)
34.4
(166.4)

(166.4)
–
(166.4)

6
6

4, 5
7

8
8

21.1
(116.4)

689.6
(118.8)
570.8

573.3
(2.5)
570.8

35.0p
34.9p

21.1
(116.4)

488.8
(84.4)
404.4

406.9
(2.5)
404.4

24.9p
24.8p

15.5
(116.8)

661.2
(124.8)
536.4

541.2
(4.8)
536.4

33.1p
32.9p

–
–

(61.2)
6.5
(54.7)

(54.7)
–
(54.7)

15.5
(116.8)

600.0
(118.3)
481.7

486.5
(4.8)
481.7

29.7p
29.5p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Proﬁ t for the year
Other comprehensive income:
Items that will not be reclassiﬁ ed to proﬁ t or loss
Remeasurements of retirement beneﬁ t schemes
Tax charge on items that will not be reclassiﬁ ed

Items that will be reclassiﬁ ed subsequently to proﬁ t or loss
Foreign currency translation diff erences
Cash ﬂ ow hedges and net investment hedges
– fair value movements recognised in other comprehensive income
– reclassiﬁ ed and reported in proﬁ t or loss
– amount recognised in inventories
Tax credit/(charge) on cash ﬂ ow hedges and net investment hedges

Other comprehensive income for the year, net of tax
Total comprehensive income for the year

Attributable to:
Owners of the parent
Non-controlling interests

53 weeks ended
2 April 2016
£m

52 weeks ended
28 March 2015
£m

Notes

404.4

481.7

346.2
(45.6)
300.6

193.7
(40.2)
153.5

7.3

(7.5)

(30.1)
(22.1)
5.9
6.5
(32.5)
268.1
672.5

675.0
(2.5)
672.5

221.2
(60.0)
(21.6)
(21.2)
110.9
264.4
746.1

750.9
(4.8)
746.1

87
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investment property
Investment in joint ventures
Other ﬁ nancial assets
Retirement beneﬁ t asset
Trade and other receivables
Derivative ﬁ nancial instruments

Deferred tax assets

Current assets
Inventories
Other ﬁ nancial assets
Trade and other receivables
Derivative ﬁ nancial instruments
Current tax assets
Cash and cash equivalents

Total assets
Liabilities
Current liabilities
Trade and other payables
Partnership liability to the Marks & Spencer UK Pension Scheme
Borrowings and other ﬁ nancial liabilities
Derivative ﬁ nancial instruments
Provisions
Current tax liabilities

Non-current liabilities
Retirement beneﬁ t deﬁ cit
Trade and other payables
Partnership liability to the Marks & Spencer UK Pension Scheme
Borrowings and other ﬁ nancial liabilities
Derivative ﬁ nancial instruments
Provisions
Deferred tax liabilities

Total liabilities
Net assets
Equity
Issued share capital
Share premium account
Capital redemption reserve
Hedging reserve
Other reserve
Retained earnings
Total shareholders’ equity
Non-controlling interests in equity
Total equity

As at
2 April 2016
£m

As at
28 March 2015
£m

Notes

14
15

16
11
17
21

16
17
21

19
12
20
21
22

11
19
12
20
21
22
23

802.8
5,027.1
15.5
6.9
3.0
851.0
234.7
74.0

–
7,015.0

799.9
19.1
321.1
72.1
1.6
247.6
1,461.4
8,476.4

1,617.7
71.9
297.5
28.5
14.0
75.2
2,104.8

26.9
353.0
383.8
1,774.7
0.2
52.0
337.6
2,928.2
5,033.0
3,443.4

405.8
411.3
2,210.5
32.3
(6,542.2)
6,927.5
3,445.2
(1.8)
3,443.4

858.2
5,031.1
15.6
12.2
3.0
460.7
283.3
75.8

1.2
6,741.1

797.8
11.6
321.8
117.9
–
205.9
1,455.0
8,196.1

1,642.4
71.9
279.4
7.7
46.2
64.0
2,111.6

11.7
319.7
441.0
1,745.9
20.0
32.1
315.3
2,885.7
4,997.3
3,198.8

412.0
392.4
2,202.6
64.3
(6,542.2)
6,670.5
3,199.6
(0.8)
3,198.8

The ﬁ nancial statements were approved by the Board and authorised for issue on 24 May 2016. The ﬁ nancial statements also comprise the
notes on pages 90 to 125.

Steve Rowe Chief Executive Offi cer

Helen Weir Chief Finance Offi cer

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88
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

As at 30 March 2014
Proﬁ t/(loss) for the year
Other comprehensive (expense)/income:

Foreign currency translation
Remeasurements of retirement
beneﬁ t schemes
Tax charge on items that will not be reclassiﬁ ed
Cash ﬂ ow hedges and net investment hedges
– fair value movements recognised in other

comprehensive income

– reclassiﬁ ed and reported in proﬁ t or loss³
– amount recognised in inventories
Tax on cash ﬂ ow hedges and net
investment hedges

Other comprehensive income
Total comprehensive income/(expense)
Transactions with owners:

Dividends
Transactions with non-controlling shareholders
Shares issued on exercise of employee
share options
Purchase of own shares held by
employee trusts
Release of share-based payments
Deferred tax on share schemes

As at 28 March 2015

As at 29 March 2015
Proﬁ t/(loss) for the year
Other comprehensive (expense)/income:

comprehensive income

– reclassiﬁ ed and reported in proﬁ t or loss3
– amount recognised in inventories3
Tax on cash ﬂ ow hedges and net
investment hedges

Other comprehensive income/(expense)
Total comprehensive income/(expense)
Transactions with owners:

Dividends
Transactions with non-controlling shareholders
Shares issued on exercise of employee
share options
Purchase of own shares held by
employee trusts
Shares purchased in buyback
Credit for share-based payments
Deferred tax on share schemes

As at 2 April 2016

Ordinary
share
capital
£m

408.1
–

Share
premium
account
£m

Capital
redemption
reserve
£m

Hedging
reserve
£m

Other
reserve¹
£m

Retained
earnings²
£m

Non-
controlling
interest
£m

Total
£m

355.5 2,202.6
–

–

(41.8)
–

(6,542.2)
–

6,325.1 2,707.3
486.5

486.5

(0.6) 2,706.7
481.7
(4.8)

–

–
–

–
–
–

–
–

–

–
–

–
–
–

–
–

3.9

36.9

–

–
–

–
–
–

–
–

–

–
–
–
412.0

–
–
–

–
–
–
392.4 2,202.6

412.0
–

392.4 2,202.6
–

–

(2.0)

–
–

210.9
(60.0)
(21.6)

(21.2)
106.1
106.1

–
–

–

–
–
–
64.3

–

–
–

–
–
–

–
–

–

–
–

–
–
–

–
–

1.7

18.9

–

–
–

–
–
–

–
–

–

(0.5)

–
–

(21.8)
(22.1)
5.9

6.5
(32.0)
(32.0)

–
–

–

–
–

–
–
–

–
–

–

–
–

–
–
–

–
–

–

(5.5)

(7.5)

193.7
(40.2)

10.3
–
–

–
158.3
644.8

221.2
(60.0)
(21.6)

(21.2)
264.4
750.9

–

–
–

–
–
–

–
–
(4.8)

(7.5)

193.7
(40.2)

221.2
(60.0)
(21.6)

(21.2)
264.4
746.1

(280.7)
–

–
4.6

(280.7)
4.6

–

40.8

–

40.8

–
–
–

(24.2)
(1.1)
6.6
(0.8) 3,198.8

(0.8) 3,198.8
(2.5) 404.4

–

–
–

–
–
–

7.3

346.2
(45.6)

(30.1)
(22.1)
5.9

7.8

7.3

346.2
(45.6)

(8.3)
–
–

(30.1)
(22.1)
5.9

–
300.1
707.0

6.5
268.1
675.0

–
–
(2.5)

6.5
268.1
672.5

(301.7)
–

–
1.5

(301.7)
1.5

–

20.6

–

20.6

–
–
–

(24.2)
(1.1)
6.6
(6,542.2) 6,670.5 3,199.6

(24.2)
(1.1)
6.6

64.3 (6,542.2) 6,670.5 3,199.6
406.9

406.9

–

–
(7.9)
–
–
405.8

–
–
–
–
411.3

–
7.9
–
–
2,210.5

–
–
–
–

(10.9)
(150.7)
17.2
(3.9)
32.3 (6,542.2) 6,927.5 3,445.2

(10.9)
(150.7)
17.2
(3.9)

–
–
–
–

(10.9)
(150.7)
17.2
(3.9)
(1.8) 3,443.4

1. The ‘Other reserve’ was originally created as part of the capital restructuring that took place in 2002. It represents the diff erence between the nominal value of the shares issued prior to
the capital reduction by the Company (being the carrying value of the investment in Marks and Spencer plc) and the share capital, share premium and capital redemption reserve of
Marks and Spencer plc at the date of the transaction.

2. The ‘Retained earnings reserve’ includes a cumulative £4.8m loss (last year £12.6m loss) in the currency reserve.
3. Amounts 'reclassiﬁ ed and reported in proﬁ t or loss' are presented within ﬁ nance costs off setting the revaluation of the hedged bonds (last year £4.4m was presented in cost of sales
and £55.6m in ﬁ nance costs). 'Amount recognised in inventories' includes £(93.7)m included cost of sales for the year and £87.8m (last year £21.6m) that remains in inventory at the
balance sheet date.

89
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

CONSOLIDATED STATEMENT OF CASH FLOWS

Cash ﬂ ows from operating activities
Cash generated from operations
Income tax paid
Net cash inﬂ ow from operating activities

Cash ﬂ ows from investing activities
Proceeds on property disposals
Purchase of property, plant and equipment
Purchase of intangible assets
(Purchase)/reduction of current ﬁ nancial assets
Interest received
Acquisition of subsidiary
Net cash used in investing activities

Cash ﬂ ows from ﬁ nancing activities
Interest paid¹
Cash inﬂ ow/(outﬂ ow) from borrowings
Repayment of syndicated loan notes
Decrease in obligations under ﬁ nance leases
Payment of liability to the Marks & Spencer UK Pension Scheme
Equity dividends paid
Shares issued on exercise of employee share options
Purchase of own shares held by employee trust
Share buyback
Net cash used in ﬁ nancing activities

Net cash inﬂ ow from activities
Eff ects of exchange rate changes
Opening net cash
Closing net cash

1. Includes interest on the partnership liability to the Marks & Spencer UK Pension Scheme.

Reconciliation of net cash ﬂ ow to movement in net debt
Opening net debt
Net cash inﬂ ow from activities
Increase/(decrease) in current ﬁ nancial assets
Decrease in debt ﬁ nancing
Exchange and other non-cash movements
Movement in net debt
Closing net debt

Notes

53 weeks ended
2 April 2016
£m

52 weeks ended
28 March 2015
£m

1,311.3
(99.3)
1,212.0

1,349.1
(71.1)
1,278.0

30.6
(363.3)
(186.8)
(7.2)
6.8
(56.2)
(576.1)

(113.5)
3.1
(19.9)
(2.4)
(56.0)
(301.7)
20.6
(10.9)
(150.7)
(631.4)

4.5
3.7
187.8
196.0

35.4
(521.8)
(178.0)
6.0
9.3
–
(649.1)

(115.3)
(165.7)
(10.2)
(4.8)
(54.4)
(280.7)
40.8
(24.2)
–
(614.5)

14.4
(2.3)
175.7
187.8

53 weeks ended
2 April 2016
£m

52 weeks ended
28 March 2015
£m

Notes

(2,223.2)
4.5
7.2
75.2
(2.0)
84.9
(2,138.3)

(2,463.6)
14.4
(6.0)
235.1
(3.1)
240.4
(2,223.2)

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90
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS

1 ACCOUNTING POLICIES

General information
The current ﬁ nancial statements are prepared for the 53 week
period ended 2 April 2016, whereas the prior ﬁ nancial period was
the 52 weeks ended 28 March 2015.

Basis of preparation
The ﬁ nancial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) and IFRS
Interpretations Committee (IFRS IC) interpretations, as adopted by
the European Union and with those parts of the Companies Act
2006 applicable to companies reporting under IFRS.

In adopting the going concern basis for preparing the ﬁ nancial
statements, the directors have considered the business activities as
set out on pages 1 to 29 including the Group’s principal risks and
uncertainties as set out on pages 27 to 29. Based on the Group’s
cash ﬂ ow forecasts and projections, the Board is satisﬁ ed that the
Group will be able to operate within the level of its bank facilities for
the foreseeable future. For this reason the Group continues to adopt
the going concern basis in preparing its ﬁ nancial statements.

The Marks and Spencer Scottish Limited Partnership has taken an
exemption under paragraph 7 of the Partnership (Accounts)
Regulations 2008 for the requirement to prepare and deliver
ﬁ nancial statements in accordance with the Companies Act.

New accounting standards adopted by the Group
There have been no signiﬁ cant changes to accounting under IFRS
which have aff ected the Group’s results. For the current ﬁ nancial
year, the only changes to the IFRS, IFRS IC interpretations and
amendments that are eff ective for the ﬁ rst time in this ﬁ nancial
year are the Annual Improvements to IFRSs: 2011-2013 cycle.
These have not had a material impact on the Group.

New accounting standards in issue but not yet eff ective
The following IFRS have been issued but are not yet eff ective:

> IFRS 16 ‘Leases’ was issued on 13 January 2016 and is eff ective for
periods beginning on or after 1 January 2019. Early adoption is
permitted if IFRS 15 ‘Revenue from Contracts with Customers’
has also been applied. The standard is yet to be endorsed by
the EU. The standard represents a signiﬁ cant change in the
accounting and reporting of leases for lessees as it provides a
single lessee accounting model, and as such, requires lessees
to recognise assets and liabilities for all leases unless the
underlying asset has a low value or the lease term is 12 months
or less. Accounting requirements for lessors are substantially
unchanged from IAS 17. The impact of the standard on the Group
is currently being assessed and it is not yet practicable to quantify
the eff ect of IFRS 16 on these consolidated ﬁ nancial statements;

> IFRS 9 ‘Financial Instruments’ replaces all phases of the

ﬁ nancial instruments project and IAS 39 ‘Financial Instruments:
Recognition and Measurement’. The standard is eff ective from
1 January 2018 and introduces: new requirements for the
classiﬁ cation and measurement of ﬁ nancial assets and ﬁ nancial
liabilities; a new model based on expected credit losses for
recognising provisions; and provides for simpliﬁ ed hedge
accounting by aligning hedge accounting more closely with an
entities risk management methodology. It is not yet practicable
to quantify the eff ect of IFRS 9 on the Group. Work on the impact
of the new recognition, impairment and general hedge
accounting requirements is in its early stages and we expect
new processes and changes to the existing IT systems may be
required to aid the Group’s implementation of the standard; and

> IFRS 15 ‘Revenue from Contracts with Customers’ is eff ective for
periods beginning on or after 1 January 2018 with early adoption
permitted. It has not yet been endorsed by the EU. The standard
establishes a principles based approach for revenue recognition
and is based on the concept of recognising revenue for
obligations only when they are satisﬁ ed and the control of
goods or services is transferred. It applies to all contracts
with customers, except those in the scope of other standards.
It replaces the separate models for goods, services and
construction contracts under the current accounting standards.
Based on the Group’s preliminary assessment from work
performed to date, the Group believes that the adoption of IFRS
15 will not have a material impact on its consolidated results but
work is still ongoing to fully quantify its impact.

A summary of the Company’s and the Group’s accounting policies is
given below:

Accounting convention
The ﬁ nancial statements are drawn up on the historical cost
basis of accounting, as modiﬁ ed by ﬁ nancial assets and ﬁ nancial
liabilities (including derivative instruments) at fair value through
proﬁ t or loss.

Basis of consolidation
The Group ﬁ nancial statements incorporate the ﬁ nancial
statements of Marks and Spencer Group plc and all its subsidiaries
made up to the period end date. Where necessary, adjustments are
made to the ﬁ nancial statements of subsidiaries to bring the
accounting policies used in line with those used by the Group.

Subsidiaries
Subsidiary undertakings are all entities (including special purpose
entities) over which the Group has the power to govern the ﬁ nancial
and operating policies. This power is generally accompanied by the
Group having a shareholding of more than one half of the voting
rights. Subsidiary undertakings acquired during the year are
recorded using the acquisition method of accounting and their
results are included from the date of acquisition.

The separable net assets, including property, plant and equipment
and intangible assets, of the newly acquired subsidiary undertakings
are incorporated into the consolidated ﬁ nancial statements on the
basis of the fair value as at the eff ective date of control.

Intercompany transactions, balances and unrealised gains on
transactions between Group companies are eliminated.

Revenue
Revenue comprises sales of goods to customers outside the Group
less an appropriate deduction for actual and expected returns,
discounts and loyalty scheme vouchers, and is stated net of value
added tax and other sales taxes. Revenue is recognised when goods
are delivered to our franchise partners or customers and the
signiﬁ cant risks and rewards of ownership have been transferred to
the buyer.

Supplier income
In line with industry practice, the Group enters into agreements
with suppliers to share the costs and beneﬁ ts of promotional
activity and volume growth. The Group receives income from its
suppliers based on speciﬁ c agreements in place. This supplier
income received is recognised as a deduction from cost of sales
based on the entitlement that has been earned up to the balance
sheet date for each relevant supplier agreement. Marketing
contributions, equipment hire and other non-judgemental, ﬁ xed
rate supplier charges are not included in the Group’s deﬁ nition of
supplier income.

91
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

1 ACCOUNTING POLICIES CONTINUED

Supplier income continued
The types of supplier income recognised by the Group and the
associated recognition policies are:

A. Promotional contribution: Includes supplier contributions to
promotional giveaways and pre-agreed contributions to annual
‘spend and save’ activity.

Income is recognised as a deduction to cost of sales over the
relevant promotional period.

Income is calculated and invoiced at the end of the promotional
period based on actual sales or according to ﬁ xed contribution
arrangements. Contributions earned but not invoiced are accrued
at the end of the relevant period.

B. Volume-based rebates: Includes annual growth incentives,
seasonal contributions and contributions to share economies of
scale resulting from moving product supply.

Annual growth incentives are calculated and invoiced at the end
of the ﬁ nancial year, once earned, based on ﬁ xed percentage
growth targets agreed for each supplier at the beginning of the
year. They are recognised as a reduction in cost of sales in the year
to which they relate. Other volume based rebates are agreed with
the supplier and spread over the relevant season/contract period
to which they relate. Contributions earned but not invoiced are
accrued at the end of the relevant period.

Uncollected supplier income at the balance sheet date is classiﬁ ed
within the ﬁ nancial statements as follows:

A. Trade and other payables: The majority of income due from
suppliers is netted against amounts owed to that supplier as
the Group has the right to off set these balances. As such the
outstanding supplier income within trade and other payables at
year end is immaterial.

B. Trade and other receivables: Supplier income that has been
earned but not invoiced at the balance sheet date is recognised in
trade and other receivables and primarily relates to volume based
rebates that run up to the period end.

In order to provide users of the accounts with greater understanding
in this area, additional balance sheet disclosure is provided in note 17
to the ﬁ nancial statements.

Dividends
Final dividends are recorded in the ﬁ nancial statements in the
period in which they are approved by the Company’s shareholders.
Interim dividends are recorded in the period in which they are
approved and paid.

Pensions
Funded pension plans are in place for the Group’s UK employees
and some employees overseas.

For deﬁ ned beneﬁ t pension schemes, the diff erence between the
fair value of the assets and the present value of the deﬁ ned beneﬁ t
obligation is recognised as an asset or liability in the statement of
ﬁ nancial position. The deﬁ ned beneﬁ t obligation is actuarially
calculated using the projected unit credit method.

The service cost of providing retirement beneﬁ ts to employees
during the year, together with the cost of any beneﬁ ts relating to
past service, is charged to operating proﬁ t in the year.

The net interest cost on the net retirement beneﬁ t asset/liability is
calculated by applying the discount rate, measured at the beginning
of the year, to the net deﬁ ned beneﬁ t asset/liability and is included
as a single net amount in ﬁ nance income.

Remeasurements, being actuarial gains and losses, together with
the diff erence between actual investment returns and the return
implied by the net interest cost, are recognised immediately in the
statement of comprehensive income.

Payments to deﬁ ned contribution retirement beneﬁ t schemes are
charged as an expense on an accruals basis.

Intangible assets
A. Goodwill: Goodwill arising on consolidation represents the
excess of the consideration paid and the amount of any non-
controlling interest in the acquiree over the fair value of the
identiﬁ able assets and liabilities (including intangible assets) of the
acquired entity at the date of the acquisition. Goodwill is recognised
as an asset and assessed for impairment annually or as triggering
events occur. Any impairment is recognised immediately in the
income statement.

B. Brands: Acquired brand values are held on the statement of
ﬁ nancial position initially at cost. Deﬁ nite life intangibles are
amortised on a straight-line basis over their estimated useful lives.
Indeﬁ nite life intangibles are tested for impairment annually or as
triggering events occur. Any impairment in value is recognised
immediately in the income statement.

C. Software intangibles: Where computer software is not an
integral part of a related item of computer hardware, the software
is treated as an intangible asset. Capitalised software costs include
external direct costs of goods and services, as well as internal
payroll related costs for employees who are directly associated
with the project.

Capitalised software development costs are amortised on
a straight-line basis over their expected economic lives,
normally between three and ten years. Computer software
under development is held at cost less any recognised impairment
loss. Any impairment in value is recognised immediately in the
income statement.

Property, plant and equipment
The Group’s policy is to state property, plant and equipment at cost
less accumulated depreciation and any recognised impairment loss.
Property is not revalued for accounting purposes. Assets in the
course of construction are held at cost less any recognised
impairment loss. Cost includes professional fees and, for qualifying
assets, borrowing costs.

Depreciation is provided to write off the cost of tangible non-
current assets (including investment properties), less estimated
residual values, by equal annual instalments as follows:

> Freehold land – not depreciated;

> Freehold and leasehold buildings with a remaining lease term
over 50 years – depreciated to their residual value over their
estimated remaining economic lives;

> Leasehold buildings with a remaining lease term of less than

50 years – depreciated over the remaining period of the lease; and

> Fixtures, ﬁ ttings and equipment – 3 to 25 years according to the

estimated economic life of the asset.

Residual values and useful economic lives are reviewed annually.
Depreciation is charged on all additions to, or disposals of,
depreciating assets in the year of purchase or disposal.

Any impairment in value is recognised immediately in the
income statement.

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92
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

1 ACCOUNTING POLICIES CONTINUED

Leasing
Where assets are ﬁ nanced by leasing agreements and the risks and
rewards are substantially transferred to the Group (ﬁ nance leases)
the assets are treated as if they had been purchased outright, and
the corresponding liability to the leasing company is included as
an obligation under ﬁ nance leases. Depreciation on leased assets
is charged to the income statement on the same basis as owned
assets, unless the term of the lease is shorter. Leasing payments
are treated as consisting of capital and interest elements and the
interest is charged to the income statement.

All other leases are operating leases and the costs in respect of
operating leases are charged on a straight-line basis over the lease
term. The value of any lease incentive received to take on an
operating lease (for example, a rent free period) is recognised
as deferred income and is released over the life of the lease.

Leasehold prepayments
Payments made to acquire leasehold land and buildings are
included in prepayments at cost and are amortised over the life
of the lease.

Cash and cash equivalents
Cash and cash equivalents includes short-term deposits with banks
and other ﬁ nancial institutions, with an initial maturity of three
months or less and credit card payments received within 48 hours.

Inventories
Inventories are valued on a weighted average cost basis and carried
at the lower of cost and net realisable value. Cost includes all direct
expenditure and other attributable costs incurred in bringing
inventories to their present location and condition. All inventories
are ﬁ nished goods. Certain purchases of inventories may be subject
to cash ﬂ ow hedges for foreign exchange risk. The Group applies
a basis adjustment for those purchases in a way that the cost is
initially established by reference to the hedged exchange rate and
not the spot rate at the day of purchase.

Provisions
Provisions are recognised when the Group has a present obligation
as a result of a past event, and it is probable that the Group will be
required to settle that obligation. Provisions are measured at the
best estimate of the expenditure required to settle the obligation
at the end of the reporting period, and are discounted to present
value where the eff ect is material.

Share-based payments
The Group issues equity-settled share-based payments to certain
employees. A fair value for the equity-settled share awards is
measured at the date of grant. The Group measures the fair value
of each award using the Black-Scholes model where appropriate.

The fair value of each award is recognised as an expense over the
vesting period on a straight-line basis, after allowing for an estimate
of the share awards that will eventually vest. The level of vesting is
reviewed at each reporting period and the charge is adjusted to
reﬂ ect actual and estimated levels of vesting.

Foreign currencies
The results of overseas subsidiaries are translated at the weighted
average of monthly exchange rates for revenue and proﬁ ts. The
statements of ﬁ nancial position of overseas subsidiaries are
translated at year end exchange rates. The resulting exchange
diff erences are booked into reserves and reported in the
consolidated statement of comprehensive income.

Transactions denominated in foreign currencies are translated at
the exchange rate at the date of the transaction. Foreign currency
monetary assets and liabilities held at the end of the reporting
period are translated at the closing balance sheet rate. The resulting
exchange gain or loss is recognised within the income statement,
except when deferred in other comprehensive income as qualifying
cash ﬂ ow hedges and qualifying net investment hedges.

Taxation
Tax expense comprises current and deferred tax. Tax is recognised
in the income statement, except to the extent it relates to items
recognised in other comprehensive income or directly in equity,
in which case the related tax is also recognised in other
comprehensive income or directly in equity.

Deferred tax is accounted for using a temporary diff erence
approach, and is the tax expected to be payable or recoverable
on temporary diff erences between the carrying amount of assets
and liabilities in the statement of ﬁ nancial position and the
corresponding tax bases used in the computation of taxable proﬁ t.
Deferred tax is calculated based on the expected manner of
realisation or settlement of the carrying amount of assets and
liabilities, applying tax rates and laws enacted or substantively
enacted at the end of the reporting period.

Deferred tax liabilities are generally recognised for all taxable
temporary diff erences. Deferred tax liabilities are recognised for
taxable temporary diff erences arising on investments in
subsidiaries, associates and joint ventures, except where the
reversal of the temporary diff erence can be controlled by the
Group and it is probable that the diff erence will not reverse in the
foreseeable future.

Deferred tax liabilities are not recognised on temporary diff erences
that arise from goodwill which is not deductible for tax purposes.

Deferred tax assets are recognised to the extent it is probable
that taxable proﬁ ts will be available against which the deductible
temporary diff erences can be utilised. The carrying amount of
deferred tax assets is reviewed at the end of each reporting period
and reduced to the extent that it is no longer probable that
suffi cient taxable proﬁ ts will be available to allow all or part of
the asset to be recovered.

Deferred tax assets and liabilities are not recognised in respect
of temporary diff erences that arise on initial recognition of assets
and liabilities acquired other than in a business combination.

Financial instruments
Financial assets and liabilities are recognised in the Group’s
statement of ﬁ nancial position when the Group becomes a party
to the contractual provisions of the instrument.

A. Trade and other receivables: Trade receivables are recorded
initially at fair value and subsequently measured at amortised cost.
Subsequently, this results in their recognition at nominal value less
any allowance for any doubtful debts.

B. Other ﬁ nancial assets: Other ﬁ nancial assets consist of
investments in debt and equity securities and short-term
investments and are classiﬁ ed as either ‘available-for-sale’ or
‘fair value through proﬁ t or loss’. Available for sale ﬁ nancial assets
are initially measured at fair value, including transaction costs
directly attributable to the acquisition of the ﬁ nancial asset.
Financial assets held at fair value through proﬁ t or loss are initially
recognised at fair value and transaction costs are expensed.

Where securities are designated as ‘fair value through proﬁ t or loss’,
gains and losses arising from changes in fair value are included
in the income statement for the period. For ‘available-for-sale’
investments, gains or losses arising from changes in fair value are
recognised in comprehensive income, until the security is disposed
of or is determined to be impaired, at which time the cumulative gain
or loss previously recognised in comprehensive income is included
in the income statement for the period. Equity investments that do
not have a quoted market price in an active market and whose fair
value cannot be reliably measured by other means are held at cost.

C. Classiﬁ cation of ﬁ nancial liabilities and equity: Financial
liabilities and equity instruments are classiﬁ ed according to the
substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities.

93
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

1 ACCOUNTING POLICIES CONTINUED

Financial instruments continued
D. Bank borrowings: Interest-bearing bank loans and overdrafts are
initially recorded at fair value, which equals the proceeds received,
net of direct issue costs. They are subsequently held at amortised
cost. Finance charges, including premiums payable on settlement
or redemption and direct issue costs, are accounted for using an
eff ective interest rate method and are added to the carrying
amount of the instrument to the extent that they are not settled in
the period in which they arise.

E. Loan notes: Long-term loans are initially measured at fair value
net of direct issue costs and are subsequently held at amortised
cost unless the loan is designated in a hedge relationship, in which
case hedge accounting treatment will apply.

F. Trade payables: Trade payables are recorded initially at fair value
and subsequently measured at amortised cost. Generally this
results in their recognition at their nominal value.

G. Equity instruments: Equity instruments issued by the Company
are recorded at the consideration received, net of direct issue costs.

Derivative ﬁ nancial instruments and hedging activities
The Group primarily uses interest rate swaps, cross currency swaps
and forward foreign currency contracts to manage its exposures
to ﬂ uctuations in interest rates and foreign exchange rates. These
instruments are initially recognised at fair value on the trade date
and are subsequently remeasured at their fair value at the end of
the reporting period. The method of recognising the resulting gain
or loss is dependent on whether the derivative is designated as
a hedging instrument and the nature of the item being hedged.

The Group designates certain hedging derivatives as either:

> A hedge of a highly probable forecast transaction or change in

the cash ﬂ ows of a recognised asset or liability (a cash ﬂ ow hedge);

> A hedge of the exposure to change in the fair value of a

recognised asset or liability (a fair value hedge); or

> A hedge of the exposure on the translation of net investments in

foreign entities (a net investment hedge).

At the inception of a hedging relationship the hedging instrument
and the hedged item are documented, along with the risk
management objectives and strategy for undertaking various
hedge transactions, and prospective eff ectiveness testing is
performed. During the life of the hedging relationship, prospective
and retrospective eff ectiveness testing is performed to ensure
the instrument remains an eff ective hedge of the transaction.
Changes in the fair value of derivative ﬁ nancial instruments that
do not qualify for hedge accounting are recognised in the income
statement as they arise.

A. Cash ﬂ ow hedges: Changes in the fair value of derivative
ﬁ nancial instruments that are designated and eff ective as hedges of
future cash ﬂ ows are recognised in other comprehensive income in
the hedging reserve and any ineff ective portion is recognised
immediately in the income statement. If the ﬁ rm commitment or
forecast transaction that is the subject of a cash ﬂ ow hedge results
in the recognition of a non-ﬁ nancial asset or liability, then, at the
time the asset or liability is recognised, the associated gains or
losses on the derivative that had previously been recognised in
comprehensive income are included in the initial measurement
of the asset or liability.

For hedges that do not result in the recognition of an asset or a
liability, amounts deferred in comprehensive income are recognised
in the income statement in the same period in which the hedged
items aff ect net proﬁ t or loss.

B. Fair value hedges: Changes in the fair value of a derivative
instrument designated in a fair value hedge, or for non-derivatives
the foreign currency component of carrying value, are recognised in
the income statement. The hedged item is adjusted for changes in
fair value attributable to the risk being hedged with the
corresponding entry in the income statement.

C. Net investment hedges: Changes in the fair value of derivative or
non-derivative ﬁ nancial instruments that are designated and
eff ective as hedges of net investments are recognised in other
comprehensive income in the hedging reserve and any ineff ective
portion is recognised immediately in the income statement.

Changes in the fair value of derivative ﬁ nancial instruments that
do not qualify for hedge accounting are recognised in the income
statement as they arise.

D. Discontinuance of hedge accounting: Hedge accounting is
discontinued when the hedging instrument expires or is sold,
terminated, or exercised, the hedge relationship no longer
qualiﬁ es for hedge accounting, the forecast transaction is no
longer expected to occur or the Group de-designates the
hedge relationship.

When a cash ﬂ ow hedge is discontinued, any cumulative gain or loss
on the hedging instrument recognised in comprehensive income is
retained in equity until the forecast transaction occurs. Subsequent
changes in the fair value of the hedging instruments when the
forecast transaction is no longer highly probable but is still
expected to occur, are recognised in the income statement.
If a hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognised in comprehensive income is
transferred to the income statement for the period.

When a fair value hedge is discontinued, the fair value adjustment to
the carrying amount of the hedged item arising from the hedged
risk is amortised to the income statement from that date.

When a net investment hedge is discontinued, the subsequent
changes in fair value of a derivative (or foreign exchange gains/
losses on recognised ﬁ nancial liabilities) are recognised in the
income statement. The gain or loss on the hedging instrument
recognised in other comprehensive income is reclassiﬁ ed to the
income statement only on disposal of the net investment.

The Group does not use derivatives to hedge income statement
translation exposures.

Embedded derivatives
Derivatives embedded in other ﬁ nancial instruments or other host
contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of the host contracts
and the host contracts are not carried at fair value, with unrealised
gains or losses reported in the income statement. Embedded
derivatives are carried in the statement of ﬁ nancial position at fair
value from the inception of the host contract.

Changes in fair value are recognised within the income statement
during the period in which they arise.

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B
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E
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A
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94
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

F. Inventory valuation and provisioning: Inventories are stated
at the lower of cost and net realisable value, on a weighted average
cost basis which requires the estimation of the eventual sales price
of goods to customers in the future. Provisions are recognised
where the net realisable value is assessed to be lower than cost.

Non-underlying items
The directors believe that the underlying proﬁ t and earnings
per share measures provide additional useful information for
shareholders on the underlying performance of the business.
These measures are consistent with how underlying business
performance is measured internally. The underlying proﬁ t before
tax measure is not a recognised proﬁ t measure under IFRS and may
not be directly comparable with adjusted proﬁ t measures used by
other companies. The adjustments made to reported proﬁ t before
tax are to exclude the following:

> Proﬁ ts and losses on the disposal of properties or impairments of
properties where a commitment to close has been demonstrated;

> One-off pension credits arising on changes to the deﬁ ned beneﬁ t

schemes’ rules and practices;

> Interest relating to signiﬁ cant and one-off repayments from tax

litigation claims;

> Restructuring costs;

> Signiﬁ cant and one-off impairment charges and provisions that

distort underlying trading;

> Fair value movement in ﬁ nancial instruments;

> Costs relating to strategy changes that are not considered

normal operating costs of the underlying business;

> Adjustment in income from HSBC in relation to M&S Bank due to
a non-recurring provision recognised by M&S Bank for the cost of
providing redress to customers in respect of possible mis-selling
of M&S Bank ﬁ nancial products; and

> Ex-gratia payment received from HSBC in relation to the

mis-selling of ﬁ nancial products.

1 ACCOUNTING POLICIES CONTINUED

Critical accounting estimates and judgements
The preparation of consolidated ﬁ nancial statements requires
the Group to make estimates and assumptions that aff ect the
application of policies and reported amounts. Estimates and
judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
Actual results may diff er from these estimates. The estimates and
assumptions which have a signiﬁ cant risk of causing a material
adjustment to the carrying amount of assets and liabilities are:

A. Impairment of goodwill and brands: The Group is required to
test annually or as triggering events occur, whether the goodwill
or brands are subject to impairment. The recoverable amount is
determined based on value in use calculations. The use of this
method requires the estimation of future cash ﬂ ows and the choice
of a suitable discount rate in order to calculate the present value of
these cash ﬂ ows. Determination of the appropriate period of future
cashﬂ ows is also necessary where it would be inappropriate to
assume the asset will continue into perpetuity. Where there is a non-
controlling interest, goodwill is tested for the business as a whole.
This involves a notional increase to goodwill, to reﬂ ect the non-
controlling shareholders’ interest. Actual outcomes could vary from
those calculated. See notes 5 and 14 for further details.

B. Impairment of property, plant and equipment and computer
software: Property, plant and equipment and computer software
are reviewed for impairment if events or changes in circumstances
indicate that the carrying amount may not be recoverable. When
a review for impairment is conducted, the recoverable amount is
determined based on value in use calculations prepared on the
basis of management’s assumptions and estimates. See notes
14 and 15 for further details.

C. Depreciation of property, plant and equipment and
amortisation of computer software: Depreciation and
amortisation is provided so as to write down the assets to their
residual values over their estimated useful lives as set out above.
The selection of these residual values and estimated lives requires
the exercise of management judgement. See notes 14 and 15 for
further details.

D. Post-retirement beneﬁ ts: The determination of the pension
cost and deﬁ ned beneﬁ t obligation of the Group’s deﬁ ned beneﬁ t
pension schemes depends on the selection of certain assumptions
which include the discount rate, inﬂ ation rate, salary growth,
mortality and expected return on scheme assets. Diff erences
arising from actual experiences or future changes in assumptions
will be reﬂ ected in subsequent periods. See note 11 for further
details of assumptions and note 12 for critical judgements
associated with the Marks & Spencer UK Pension Scheme interest
in the Marks and Spencer Scottish Limited Partnership.

E. Refunds, gift cards and loyalty scheme accruals: Accruals
for sales returns, deferred income in relation to loyalty scheme
redemptions and gift card and credit voucher redemptions are
estimated on the basis of historical returns and redemptions.
These are recorded so as to allocate them to the same period as
that in which the original revenue is recorded. These balances are
reviewed regularly and updated to reﬂ ect management’s latest
best estimates. However, actual returns and redemptions could
vary from those estimates.

95
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

2 SEGMENTAL INFORMATION

IFRS 8 requires operating segments to be identiﬁ ed on the basis of internal reporting on components of the Group that are regularly
reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance.

The chief operating decision maker has been identiﬁ ed as the executive directors. The executive directors review the Group’s internal
reporting in order to assess performance and allocate resources across each operating segment. The operating segments are UK and
International which are reported in a manner consistent with the internal reporting to the executive directors.

The UK segment consists of the UK retail business and UK franchise operations. The International segment consists of Marks & Spencer
owned businesses in the Republic of Ireland, Europe and Asia, together with international franchise operations.

The executive directors assess the performance of the operating segments based on a measure of operating proﬁ t. This measurement
basis excludes the eff ects of non-underlying items from the operating segments. The executive directors also monitor revenue within
the segments and gross proﬁ t within the UK segment. To increase transparency, the Group has decided to include an additional voluntary
disclosure analysing revenue within the reportable segments by subcategory and gross proﬁ t within the UK segment by subcategory.

The following is an analysis of the Group’s revenue and results by reportable segment:

53 weeks ended 2 April 2016

52 weeks ended 28 March 2015

Management
£m

Adjustment¹
£m

Non-
underlying
Items2
£m

Statutory
£m

Management
£m

Adjustment¹
£m

Non-
underlying
Items2
£m

Clothing & Home revenue
Food revenue
UK revenue
Franchised
Owned
International revenue
Group revenue

Clothing & Home gross proﬁ t
Food gross proﬁ t
UK gross proﬁ t
UK operating costs
M&S Bank
UK operating proﬁ t
International operating proﬁ t/(loss)
Group operating proﬁ t

Finance income
Finance costs

Proﬁ t before tax

3,961.3
5,509.5
9,470.8
329.7
754.9
1,084.6
10,555.4

2,180.7
1,806.2
3,986.9
(3,320.1)
59.9
726.7
58.2
784.9

21.1
(116.4)

689.6

–
–
–
–
–
–
–

3,961.3
5,509.5
9,470.8
329.7
754.9
1,084.6
10,555.4

(300.9)
300.9
–
–
–
–

–
(49.1)
(50.3)
(99.4)
(101.4)
(200.8)

3,686.0
(3,068.3)
9.6
627.3
(43.2)
584.1

3,987.4
5,234.7
9,222.1
341.3
747.0
1,088.3
10,310.4

2,098.9
1,718.5
3,817.4
(3,207.4)
60.2
670.2
92.3
762.5

–
–

–

–
–

21.1
(116.4)

15.5
(116.8)

(200.8)

488.8

661.2

1.0
–
1.0
–
–
–
1.0

(293.4)
293.4
–
–
–
–

–
–

–

Statutory
£m

3,988.4
5,234.7
9,223.1
341.3
747.0
1,088.3
10,311.4

–
–
–
–
–
–
–

–
(15.8)
(13.8)
(29.6)
(31.6)
(61.2)

3,524.0
(2,929.8)
46.4
640.6
60.7
701.3

–
–

15.5
(116.8)

(61.2)

600.0

1. Adjustments to revenue in the prior year relate to refunds recognised in cost of sales for management accounting purposes (last year £1.3m credit) and an adjustment for agency

transactions presented gross in management accounts (last year £0.3m charge). In the current year these adjustments are reﬂ ected in the management number. Management gross
proﬁ t for the UK segment excludes certain expenses resulting in an adjustment between cost of sales and selling and administrative expenses of £300.9m (last year £293.4m).
2. Management proﬁ t excludes the adjustments (income or charges) made to reported proﬁ t before tax that are one-off in nature, signiﬁ cant and distort the Group’s underlying

performance (see note 5).

Other segmental information

Additions to property, plant and equipment
and intangible assets (excluding goodwill)
Depreciation and amortisation
Impairment and asset write-off s
Total assets
Non-current assets

UK
£m

International
£m

624.9
531.9
60.8
8,062.3
6,751.9

20.0
30.9
98.8
414.1
263.1

2016

Total
£m

644.9
562.8
159.6
8,476.4
7,015.0

UK
£m

International
£m

544.4
490.8
36.0
7,763.2
6,424.0

33.4
32.0
35.3
432.9
317.1

2015

Total
£m

577.8
522.8
71.3
8,196.1
6,741.1

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96
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

3 EXPENSE ANALYSIS

Revenue
Cost of sales
Gross proﬁ t
Selling and administrative expenses
Other operating income
Underlying operating proﬁ t
Non-underlying items (see note 5)
Operating proﬁ t

The selling and administrative expenses excluding non-underlying items are further analysed below:

Employee costs1
Occupancy costs
Repairs, renewals and maintenance of property
Depreciation, amortisation and underlying asset impairments and write-off s
Other costs
Selling and administrative expenses

1. There are an additional £51.0m (last year £45.5m) of employee costs recorded within cost of sales. These costs are included within note 10A.

4 PROFIT BEFORE TAXATION

The following items have been included in arriving at proﬁ t before taxation:

Net foreign exchange losses/(gains)
Cost of inventories recognised as an expense
Depreciation of property, plant, and equipment
– owned assets
– under ﬁ nance leases
Amortisation of intangible assets
(Proﬁ t)/loss on property disposals
Impairments and write-off s of assets
Operating lease rentals payable
– property
– ﬁ xtures, ﬁ ttings and equipment

2016
Total
£m

10,555.4
(6,427.0)
4,128.4
(3,412.9)
69.4
784.9
(200.8)
584.1

2016
Total
£m

1,435.7
723.2
99.5
576.8
577.7
3,412.9

2016
£m

6.9
5,778.6

412.7
1.4
148.7
(0.6)
159.6

337.1
3.5

2015
Total
£m

10,311.4
(6,325.9)
3,985.5
(3,304.8)
81.8
762.5
(61.2)
701.3

2015
Total
£m

1,360.7
709.0
104.9
550.1
580.1
3,304.8

2015
£m

(12.7)
5,746.2

396.8
3.3
122.7
2.3
71.3

318.8
2.8

Included in administrative expenses is the auditor’s remuneration, including expenses for audit and non-audit services, payable to the
Company’s auditor Deloitte LLP and its associates as follows:

Annual audit of the Company and the consolidated ﬁ nancial statements
Audit of subsidiary companies
Audit-related assurance services
Total audit and audit-related assurance services fees
Tax compliance services
Other services
Total other services

2016
£m

0.7
0.7
0.2
1.6
–
0.1
0.1

2015
£m

0.7
0.6
0.2
1.5
0.1
0.4
0.5

97
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

5 NON UNDERLYING ITEMS

In order to provide shareholders with a measure of the true underlying performance of the business and to allow a more understandable
assessment of its position, the Group makes certain adjustments to the reported proﬁ t before tax. These adjustments for non-underlying
items are made in accordance with the Group’s accounting policy and are one-off in nature, material by size and are considered to be
distortive of the true underlying performance of the business.

The total non-underlying items reported for the 53 week period ended 2 April 2016 is a net charge of £200.8m. The adjustments made to
reported proﬁ t before tax to arrive at underlying proﬁ t are:

Net M&S Bank charges incurred in relation to the insurance mis-selling provision
Restructuring credits/(costs)
UK store review
UK one-off impairment costs
International – store closure costs and impairments
International – impairment of goodwill
International – other impairments
Proﬁ t/(loss) on property disposal and impairment following a commitment being made to
close stores
IAS 39 Fair value movement of embedded derivative
Net gain on acquisition of joint venture holding Bradford warehouse
Adjustment to proﬁ t before tax

Notes

15,22
15,22

15,22
14
14,15

15,22
21
25

2016
£m

(50.3)
9.2
(26.7)
(23.7)
(31.6)
(19.1)
(51.7)

(10.3)
(2.0)
5.4
(200.8)

2015
£m

(13.8)
(4.6)
–
–
(37.2)
–
–

(6.9)
1.3
–
(61.2)

Net M&S Bank charges incurred in relation to the insurance mis-selling provision
The Group has an economic interest in M&S Bank, a wholly owned subsidiary of HSBC, by way of a Relationship Agreement that entitles the
Group to a 50% share of the proﬁ ts of M&S Bank after appropriate deductions. The Group does not share in any losses of M&S Bank and is
not obliged to refund any fees received from HSBC although future income may be impacted by signiﬁ cant one-off deductions.

Since the year ended 31 December 2012, M&S Bank has recognised, in its audited ﬁ nancial statements, an estimated liability for redress
to customers in respect of possible mis-selling of ﬁ nancial products. The Group’s fee income from M&S Bank has been reduced by the
deduction of this estimated liability in both the current and prior years. The total charge to date for the deduction in the Group’s fee income
is £189.4m. The deduction in the period is £50.3m.

On 26 September 2014, the Group reached agreement with M&S Bank and HSBC over a number of issues in connection with the Relationship
Agreement (including the extent of historical mis-selling charges). This resulted in an ex gratia payment to the Group of £40.0m by HSBC
which was recognised as a non-underlying credit in the prior period (net of £0.1m legal fees).

Restructuring credits/(costs)
The £9.2m restructuring credit in the year relates primarily to the Group’s ongoing strategy to transition to a single tier distribution network
and the closure costs of the legacy logistics sites. The net credit in the year arises due to an updated view of the site closure proposals
(which has resulted in the retention of some sites initially announced for closure), an updated view of the estimated costs associated with
closure and the successful assignment of a lease that had initially been provided for as onerous.

UK store review
The UK store review relates to a strategic multi-year programme which was announced during the year. As part of this programme,
nine UK stores have been closed in the period resulting in charges of £26.7m being incurred. These charges relate to dilapidations
and sublet shortfalls, accelerated depreciation of ﬁ xtures and ﬁ ttings, impairments of land and buildings and redundancy costs.

UK one-off impairment costs
As part of the ongoing review of the Clothing & Home business, signiﬁ cant changes in both the trading strategy and the store ranging
strategy were made. As a result of these changes, elements of the new buying and merchandising systems will no longer be used and
as a result investment in these elements of the system have been written off , resulting in a one-off charge of £23.7m.

International – store closure costs and impairments
The international store impairment tests during the year have identiﬁ ed a number of stores across the portfolio where current and
anticipated future performance will not support the carrying value of the stores. As a result, one-off impairment charges of £21.9m
have been incurred, primarily in Western Europe and Asia.

Closure costs of £6.5m were incurred on the exit of stores, primarily in the Balkans region. In addition, separately capitalised staffi ng costs
of £3.2m relating to property and store design projects for closed/impaired international stores have been written off during the year.

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98
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

5 NON UNDERLYING ITEMS CONTINUED

International – impairment of goodwill
Goodwill arising on business combinations is not amortised but is reviewed for impairment annually, or more frequently if indicators
of impairment are identiﬁ ed. The goodwill impairment test involves an assessment of the carrying value relative to the value in use of
the CGU (calculated using the three year plans reviewed by the Board). Where the carrying value exceeds the value in use an impairment
charge is recognised. During the year indicators of impairment have been identiﬁ ed in respect of both the Czech Group and the
Hungarian businesses.

The performance of the Czech Group during the year has been heavily impacted by challenging trading conditions and weakening
currencies. These have had a detrimental impact on the business’ ability to improve proﬁ tability year-on-year. As a result, the future cash
ﬂ ows of the business no longer support the carrying value of the goodwill resulting in a full impairment of the goodwill balance of £15.8m.

The Hungarian retail market has been impacted by challenging trading conditions resulting in a decrease in gross proﬁ t and reduced
expectations of future growth. As a result, the future cash ﬂ ows of the business no longer support the carrying value of the goodwill
resulting in a full impairment of the goodwill balance of £3.3m.

International – other impairments
The M&S Mode brand was acquired in 2011 giving the Group the right to use the M&S brand in certain European markets. The valuation of this
asset is supported by the cash ﬂ ows of both owned and franchised European businesses. The deterioration in the current year trading
performance across several of these markets (most notably Greece, France, the Czech Group and Hungary) and the consequential impact
on expected future year cash ﬂ ows have resulted in the carrying value of the brand no longer being supportable. As a result a full
impairment of £32.4m has been recognised in the year.

E-SAP is an enterprise management system used solely by owned businesses in Greece, the Czech Group and Hungary. As highlighted
above, the expected future cash ﬂ ows of these countries have been impacted by challenging trading conditions and weakening currencies.
There are no plans to implement E-SAP across other international territories. As a result, the cash ﬂ ows can no longer support the carrying
value of the E-SAP system and an impairment charge of the full £19.3m has been recognised in the year.

Proﬁ t/(loss) on property disposal and impairment following a commitment being made to close stores
During the year the Group recognised a net proﬁ t of £0.6m on the disposal of stores in Hartlepool, Harlow and Gloucester.

As a result of historic store closures, the Group has a small non-operating portfolio of properties. The strategy is to market the properties for
sale (or lease assignment) or to explore sub-let opportunities where a sale or assignment is not achievable. A detailed review of the realisable
value of these assets has been performed during the year which has identiﬁ ed a one-off charge of £10.9m.

IAS 39 Fair value movement of embedded derivative
The embedded derivative arose in respect of a lease contract for the Bradford distribution warehouse held within the Lima (Bradford) S.à r.l.
joint venture. The lease contained both a rental increase cap and ﬂ oor resulting in an embedded derivative being recognised in the
Statement of FInancial Position and fair valued each reporting period. The fair value movement in the derivative during the period until
acquisition was £2.0m.

Net gain on acquisition of joint venture holding Bradford warehouse
On 29 February 2016, the Group purchased the remaining 50% of the Lima (Bradford) S.à r.l. joint venture for cash consideration of £56.2m.
In accordance with IFRS 3 ‘Business Combinations’ this acquisition was treated as a stepped acquisition resulting in a one-off fair value gain
of £27.1m.

Following the Group's acquisition, the embedded derivative in respect of the lease contract for the warehouse (see note above 'IAS 39
Fair value movement of embedded derivative ) has been derecognised from the Statement of Financial Position, resulting in a one-off cost
of £21.7m.

Refer to note 25 for more detail on this business combination.

6 FINANCE INCOME/COSTS

Bank and other interest receivable
Pension net ﬁ nance income (see note 11)
Finance income

Interest on bank borrowings
Interest payable on syndicated bank facility
Interest payable on medium-term notes
Interest payable on ﬁ nance leases
Unwind of discount on ﬁ nancial instruments
Unwind of discount on provisions (see note 22)
Unwind of discount on partnership liability to the Marks & Spencer UK Pension Scheme (see note 12)
Finance costs
Net ﬁ nance costs

2016
£m

5.8
15.3
21.1

(3.6)
(5.5)
(89.9)
(1.9)
(0.4)
(0.4)
(14.7)
(116.4)
(95.3)

2015
£m

5.0
10.5
15.5

(3.3)
(6.4)
(88.1)
(2.0)
(0.6)
(0.3)
(16.1)
(116.8)
(101.3)

99
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

7 INCOME TAX EXPENSE

A. Taxation charge

Current tax
UK corporation tax on proﬁ ts for the year at 20% (last year 21%)
– current year
– adjustments in respect of prior years
UK current tax
Overseas current taxation
– current year
– adjustments in respect of prior years
Total current taxation
Deferred tax
– origination and reversal of temporary diff erences
– adjustments in respect of prior years
– changes in tax rate
Total deferred tax (see note 23)
Total income tax expense

B. Taxation reconciliation
The eff ective tax rate was 17.3% (last year 19.7%) and is reconciled below:

Proﬁ t before tax
Notional taxation at standard UK corporation tax rate of 20% (last year 21%)
Depreciation and other amounts in relation to ﬁ xed assets that do not qualify for tax relief
Other income and expenses that are not taxable or allowable for tax purposes
Recalculation of deferred tax balances due to the change in statutory UK tax rates
Overseas proﬁ ts taxed at rates diff erent to those of the UK
Overseas tax losses where there is no relief anticipated in the foreseeable future
Adjustments to current and deferred tax charges in respect of prior periods
Adjustments to underlying proﬁ t:
– depreciation and other amounts in relation to ﬁ xed assets that do not qualify for tax relief
– international store review charges where no tax relief is available
– (proﬁ ts)/losses on property disposals
– acquisition of Lima (Bradford) S.à r.l. joint venture
– recalculation of deferred tax balances due to change in statutory UK tax rates
– overseas proﬁ ts taxed at rates diff erent to those of the UK
Total income tax expense

2016
£m

2015
£m

111.6
(5.6)
106.0

12.4
(0.5)
117.9

(28.3)
2.6
(7.8)
(33.5)
84.4

2016
£m

488.8
97.8
2.3
(9.6)
(7.8)
(4.3)
3.7
(3.5)

2.6
15.3
(1.5)
(5.4)
–
(5.2)
84.4

106.5
(7.5)
99.0

12.3
(3.0)
108.3

5.8
4.5
(0.3)
10.0
118.3

2015
£m

600.0
126.0
5.3
(9.9)
(0.3)
(7.9)
4.8
(6.1)

–
7.7
(1.3)
–
0.1
(0.1)
118.3

After excluding non-underlying items the underlying eff ective tax rate was 17.2% (last year 18.9%).

On 18 November 2015, the Finance Bill received Royal Assent and so the previously announced reductions in the rate of corporation tax to
19% from 1 April 2017 and 18% from 1 April 2020 were enacted. The Group has remeasured its UK deferred tax assets and liabilities at the end
of the reporting period at the rates of 20%, 19% and 18% based on an expectation of when those balances are expected to unwind. This has
resulted in the recognition of a deferred tax credit of £7.6m in the income statement and the recognition of a deferred tax credit of £20.9m
in other comprehensive income. Also included in the total deferred tax credit above of £7.8m is £0.2m relating to rate changes in Slovakia.

On 16 March 2016, the Chancellor of the Exchequer announced that the planned reduction to 18% from 1 April 2020 would instead be a
reduction to 17%. The Finance Bill was not substantively enacted at the year end date therefore the Group has not recognised the one-off
impact of remeasuring balances from 18% to 17%. However, if 17% was applied, it is estimated that this would result in a further deferred tax
credit of £3.5m in the income statement and the recognition of a further deferred tax credit of £9.6m in other comprehensive income.

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100
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

7 INCOME TAX EXPENSE CONTINUED

C Current tax reconciliation

The current tax reconciliation shows the main adjustments made to the Group’s accounting proﬁ ts in order to arrive at its taxable proﬁ ts.
The reconciling items diff er from those in note 7B as the eff ects of deferred tax timing diff erences are ignored below.

Proﬁ t before taxation
Notional taxation at standard UK corporation tax rate of 20% (last year: 21%)
Disallowable accounting depreciation and other similar items
Deductible capital allowances
Allowable deductions for employee share schemes
Allowable deductions for employee pension schemes
Overseas proﬁ ts taxed at rates diff erent to those of the UK
Overseas tax losses where there is no immediate relief
Other income and expenses that are not taxable or allowable
Adjustments to underlying proﬁ t:
– international store review charges where no tax relief is available
– (proﬁ ts)/losses on property disposals
– UK property and investment deductions where no tax relief is available
– acquisition of Lima (Bradford) S.à r.l. joint venture
– embedded derivative
– overseas proﬁ ts taxed at rates diff erent to those of the UK
Current year current tax charge

Represented by:
UK current year current tax
Overseas current year current tax

UK adjustments in respect of prior years
Overseas adjustments in respect of prior years
Total current taxation (note 7A)

2016
£m

488.8
97.8
85.4
(71.5)
(3.4)
(13.4)
(4.3)
3.7
7.6

21.0
(0.5)
7.5
(5.4)
4.7
(5.2)
124.0

111.6
12.4
124.0
(5.6)
(0.5)
117.9

2015
£m

600.0
126.0
86.1
(76.9)
(10.2)
(15.6)
(5.7)
4.8
1.9

7.7
0.5
0.6
–
(0.3)
(0.1)
118.8

106.5
12.3
118.8
(7.5)
(3.0)
108.3

101
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

8 EARNINGS PER SHARE

The calculation of earnings per ordinary share is based on earnings after tax and the weighted average number of ordinary shares in issue
during the year.

The underlying earnings per share ﬁ gures have also been calculated based on earnings before items that are one-off in nature, material
by size and are considered to be distortive of the true underlying performance of the business (see note 5). These have been calculated to
allow the shareholders to gain an understanding of the underlying trading performance of the Group.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive
potential ordinary shares. The Group has four classes of dilutive potential ordinary shares being those share options granted to employees
where the exercise price is less than the average market price of the Company’s ordinary shares during the year, unvested shares granted
under the Deferred Share Bonus Plan, unvested shares granted under the Restricted Share Plan and unvested shares within the
Performance Share Plan that have met the relevant performance conditions at the end of the reporting period.

Details of the underlying earnings per share are set out below:

Proﬁ t attributable to equity shareholders of the Company
Add/(less) (net of tax):
Net M&S Bank charges incurred in relation to the insurance mis-selling provision
Restructuring credits/(costs)
UK store review
UK one-off impairment costs
International – store closure costs and impairments
International – impairment of goodwill
International – other impairments
Proﬁ t/(loss) on property disposal and impairment following a commitment being made to close stores
IAS 39 Fair value movement of embedded derivative
Net gain on acquisition of joint venture holding Bradford warehouse
Underlying proﬁ t attributable to equity shareholders of the Company

Weighted average number of ordinary shares in issue
Potentially dilutive share options under Group’s share option schemes
Weighted average number of diluted ordinary shares

Basic earnings per share
Diluted earnings per share
Underlying basic earnings per share
Underlying diluted earnings per share

9 DIVIDENDS

Dividends on equity ordinary shares
Paid ﬁ nal dividend
Paid interim dividend

2016
per share

2015
per share

11.6p
6.8p
18.4p

10.8p
6.4p
17.2p

2016
£m

406.9

40.2
(7.3)
21.7
19.0
25.2
19.1
47.8
8.8
1.6
(9.7)
573.3

2015
£m

486.5

10.9
3.9
–
–
36.6
–
–
4.3
(1.0)
–
541.2

Million

1,635.9
6.3
1,642.2

Million

1,635.6
11.3
1,646.9

Pence

24.9
24.8
35.0
34.9

2016
£m

190.8
110.9
301.7

Pence

29.7
29.5
33.1
32.9

2015
£m

176.2
104.5
280.7

The directors have proposed a ﬁ nal dividend in respect of the year ended 2 April 2016 of 11.9p per share (last year 11.6p) amounting to a
dividend of £192.6m (last year £190.8m). The payment is subject to approval at the Annual General Meeting, to be held on 12 July 2016.

In addition, the Board have declared the payment of a Special dividend of 4.6p per share amounting to a dividend of c. £75m. Both the
Special and the Final dividends will be paid on 15 July 2016 to the shareholders on the register of members as at close of business on
3 June 2016. In line with the requirements of IAS 10 – ‘Events after the reporting period’, these dividends have not been recognised within
these results.

A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the Company.
The shares will go ex-dividend on 2 June 2016. For those shareholders electing to receive the DRIP the last date for receipt of a new election
is 24 June 2016.

The Group has a progressive dividend policy with dividends covered broadly twice by earnings as explained in the Financial Review on
page 23.

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102
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

10 EMPLOYEES

A. Aggregate remuneration
The aggregate remuneration and associated costs of Group employees (including executive directors) were:

Wages and salaries
Social security costs
Pension costs (see note 11)
Share-based payments (see note 13)
Employee welfare and other personnel costs
Capitalised staffi ng costs
Total aggregate remuneration

Details of key management compensation are given in note 29.

B. Average monthly number of employees

UK stores
– management and supervisory categories
– other
UK head offi ce
– management and supervisory categories
– other
UK operations
– management and supervisory categories
– other
Overseas
Total average number of employees

2016
Total
£m

1,278.8
80.6
102.0
16.0
46.7
(37.4)
1,486.7

2015
Total
£m

1,224.3
80.9
85.4
(1.1)
49.7
(33.0)
1,406.2

2016

2015

5,696
63,733

3,191
881

257
1,127
8,063
82,948

5,516
64,182

3,055
866

225
835
8,390
83,069

If the number of hours worked was converted on the basis of a normal working week, the equivalent average number of full-time employees
would have been 58,895 (last year 59,096).

11 RETIREMENT BENEFITS

The Group provides pension arrangements for the beneﬁ t of its UK employees through the Marks & Spencer UK Pension Scheme
(a deﬁ ned beneﬁ t arrangement which was closed to new entrants with eff ect from 1 April 2002) and Your M&S Pension Saving Plan
(a deﬁ ned contribution arrangement which has been open to new members with eff ect from 1 April 2003).

The deﬁ ned contribution plan is a pension plan under which the Group pays contributions to an independently administered fund – such
contributions are based upon a ﬁ xed percentage of employees’ pay. The Group has no legal or constructive obligations to pay further
contributions to the fund once the contributions have been paid. Members’ beneﬁ ts are determined by the amount of contributions paid
by the Group and the member, together with the investment returns earned on the contributions arising from the performance of each
individual’s investments and how each member chooses to receive their retirement beneﬁ ts. As a result, actuarial risk (that beneﬁ ts will be
lower than expected) and investment risk (that assets invested in will not perform in line with expectations) fall on the employee.

The deﬁ ned beneﬁ t arrangement operates on a ﬁ nal salary basis and at the year end had 11,176 active members (last year 11,899), 53,589
deferred members (last year 54,314) and 51,047 pensioners (last year 51,114). At the year end, the deﬁ ned contribution arrangement had
40,712 active members (last year 37,570) and 8,823 deferred members (last year 6,135). The scheme is governed by a trustee board which
is independent of the Group.

The Group also operates a small funded deﬁ ned beneﬁ t pension scheme in the Republic of Ireland. This scheme closed to future accrual
from 31 October 2013. Retirement beneﬁ ts also include a UK post-retirement healthcare scheme and unfunded retirement beneﬁ ts.

103
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

11 RETIREMENT BENEFITS CONTINUED

Within the total Group retirement beneﬁ t cost of £86.7m (last year £74.9m), £41.0m (last year £33.7m) relates to the UK deﬁ ned beneﬁ t
scheme, £40.3m (last year £36.4m) to the UK deﬁ ned contribution scheme and £5.4m (last year £4.8m) to other retirement beneﬁ t schemes.

The most recent actuarial valuation of the Marks & Spencer UK Pension Scheme was carried out at 31 March 2015 and showed a funding
surplus of £204m. The valuation is based on the same methodology adopted for the 2012 valuation but incorporates the latest asset values
and revised assumptions. The Company and Trustees have agreed to continue with the current strategy to de-risk over the long term, with
no change to the agreed additional cash contributions due to be paid into the scheme in respect of beneﬁ ts already accrued by members.
This meant that the Group paid an additional contribution of £28m in March 2016 and will pay a further £28m by 31 March 2017. In addition,
it was agreed that ongoing contributions paid into the scheme to cover future beneﬁ ts earned by members will increase from 23.4% to
34.3% of pensionable salaries.

By funding its deﬁ ned beneﬁ t pension schemes, the Group is exposed to the risk that the cost of meeting its obligations is higher than
anticipated. This could occur for several reasons, for example:

> Investment returns on the schemes’ assets may be lower than anticipated, especially if falls in asset values are not matched by similar

falls in the value of the schemes’ liabilities.

> The level of price inﬂ ation may be higher than that assumed, resulting in higher payments from the schemes.

> Scheme members may live longer than assumed, for example due to unanticipated advances in medical healthcare. Members may

also exercise (or not exercise) options in a way that lead to increases in the schemes’ liabilities, for example through early retirement or
commutation of pension for cash.

> Legislative changes could also lead to an increase in the schemes’ liabilities.

In addition, the Group has an obligation to the UK deﬁ ned beneﬁ t scheme via the interest in the Scottish Limited Partnership (refer to note
12), through which the Group is exposed to additional risks. In particular, under the legal terms of the Partnership, a default by the Group
on the rental payments to the Partnership or a future change in legislation could trigger earlier or higher payments to the Pension Scheme,
or an increase in the collateral to be provided by the Group.

A. Pensions and other post-retirement liabilities

Total market value of assets
Present value of scheme liabilities
Net funded pension plan asset
Unfunded retirement beneﬁ ts
Post-retirement healthcare
Net retirement beneﬁ t asset

Analysed in the statement of ﬁ nancial position as:
Retirement beneﬁ t asset
Retirement beneﬁ t deﬁ cit
Net retirement beneﬁ t asset

2016
£m

8,515.3
(7,682.3)
833.0
(0.9)
(8.0)
824.1

851.0
(26.9)
824.1

2015
£m

8,596.5
(8,135.8)
460.7
(0.7)
(11.0)
449.0

460.7
(11.7)
449.0

The asset recognised for the UK deﬁ ned beneﬁ t scheme is based on the assumption that the full surplus will ultimately be available to the
Group as a future refund of surplus.

B. Financial assumptions
The ﬁ nancial assumptions for the UK deﬁ ned beneﬁ t scheme and the most recent actuarial valuations of the other post-retirement
schemes have been updated by independent qualiﬁ ed actuaries to take account of the requirements of IAS 19 ‘Employee Beneﬁ ts’ in
order to assess the liabilities of the schemes and are as follows:

Rate of increase in salaries
Rate of increase in pensions in payment for service
Discount rate
Inﬂ ation rate
Long-term healthcare cost increases

2016
%

1.0
1.9-3.0
3.40
2.95
6.95

2015
%

1.0
1.9-3.0
3.10
3.10
7.10

The inﬂ ation rate of 2.95% (last year 3.10%) reﬂ ects the Retail Price Index (RPI) rate. Certain beneﬁ ts have been calculated with reference to
the Consumer Price Index (CPI) as the inﬂ ationary measure and in these instances a rate of 1.95% (last year 2.10%) has been used.

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104
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

11 RETIREMENT BENEFITS CONTINUED

C. Demographic assumptions
The demographic assumptions are in line with those adopted for the last formal actuarial valuation of the scheme performed as at
31 March 2015. The post-retirement mortality assumptions are based on an analysis of the pensioner mortality trends under the scheme
for the period to March 2015. The speciﬁ c mortality rates used are based on the VITA tables. The life expectancies underlying the valuation
are as follows:

Current pensioners (at age 65)

Future pensioners – currently in active status (at age 65)

– males
– females
– males
– females

Future pensioners – currently in deferred status (at age 65) – males

– females

2016

23.1
24.6
23.6
26.2
24.1
26.4

D. Sensitivity analysis
The table below summarises the estimated impact of changes in the principal actuarial assumptions on the pension scheme surplus:

Decrease in scheme surplus caused by a decrease in the discount rate of 0.25%
Increase in scheme surplus caused by a decrease in the inﬂ ation rate of 0.25%
Increase in scheme surplus caused by a decrease in the average life expectancy of one year

2016
£m

(90.0)
20.0
300.0

2015

22.7
24.4
22.4
25.1
23.2
26.0

2015
£m

(70.0)
30.0
330.0

The sensitivity analysis above is based on a change in one assumption while holding all others constant. Therefore interdependencies
between the assumptions have not been taken into account within the analysis.

E. Analysis of assets
The investment strategy of the UK deﬁ ned beneﬁ t scheme is driven by its liability proﬁ le, including its inﬂ ation-linked pension beneﬁ ts.
In addition to its interest in the Scottish Limited Partnership (refer to note 12), the scheme invests in diff erent types of bonds (including
corporate bonds and gilts) and derivative instruments (including inﬂ ation, interest rate, cross-currency and total return swaps) in order
to align movements in the value of its assets with movements in its liabilities arising from changes in market conditions. Broadly the
scheme has hedging that covers 90% of interest rate movements and 85% of inﬂ ation movements, as measured on the Trustees' funding
assumptions which use a discount rate derived from gilt yields.

The fair value of the total plan assets at the end of the reporting period for each category, are as follows:

Debt investments
– government bonds net of repurchase agreements1
– corporate bonds
– asset backed securities and structured debt
Scottish Limited Partnership interest (see note 12)
Equity investments – quoted
Equity investments – unquoted
Property
Derivatives
– interest and inﬂ ation rate swap contracts
– foreign exchange contracts and other derivatives
Hedge and reinsurance funds
Cash and cash equivalents
Other

1. Repurchase agreements were £1,333.0m (last year £805.0m).

2016
£m

2015
£m

4,165.7
1,058.2
459.0
469.5
1,047.5
236.7
420.7

(101.5)
142.0
317.9
190.5
109.1
8,515.3

4,180.0
1,211.0
363.9
531.3
1,131.8
178.0
327.1

(127.5)
190.9
313.6
306.2
(9.8)
8,596.5

The fair values of the above equity and debt investments are determined based on publicly available market prices wherever available.
Unquoted investments, hedge funds and reinsurance funds are stated at fair value estimates provided by the manager of the investment
or fund. Property includes both quoted and unquoted investments. The market value of the Scottish Limited Partnership interest is based
on the expected cash ﬂ ows and benchmark asset-backed credit spreads. It is the policy of the Scheme to hedge a proportion of interest
rate and inﬂ ation risk. The Scheme reduces its foreign currency exposure using forward foreign exchange contracts.

At year end, the UK deﬁ ned beneﬁ t scheme indirectly held 169,509 (last year 199,032) ordinary shares in the Company through its
investment in UK Equity Index Funds.

105
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

11 RETIREMENT BENEFITS CONTINUED

F. Analysis of amounts charged against proﬁ ts
Amounts recognised in comprehensive income in respect of retirement beneﬁ t plans are as follows:

Current service cost
Administration costs
Past service costs – curtailment charge
Net interest income
Total

Remeasurement on the net deﬁ ned beneﬁ t surplus:
– actual return on scheme assets excluding amounts included in net interest income
– actuarial gain – experience
– actuarial loss – demographic assumptions
– actuarial (gain)/loss – ﬁ nancial assumptions
Components of deﬁ ned beneﬁ t gain recognised in other comprehensive income

G. Scheme assets
Changes in the fair value of the scheme assets are as follows:

Fair value of scheme assets at start of year
Interest income based on discount rate
Actual return on scheme assets excluding amounts included in net interest income¹
Employer contributions
Beneﬁ ts paid
Administration costs
Exchange movement
Fair value of scheme assets at end of year

1. The actual return on scheme assets was a gain of £106.1m (last year gain of £2,015.4m).

H. Pensions and other post-retirement liabilities
Changes in the present value of retirement beneﬁ t obligations are as follows:

Present value of obligation at start of year
Current service cost
Curtailment charge
Interest cost
Beneﬁ ts paid
Actuarial gain – experience
Actuarial loss – demographic assumptions
Actuarial (gain) /loss – ﬁ nancial assumptions
Exchange movement
Present value of obligation at end of year
Analysed as:
Present value of pension scheme liabilities
Unfunded pension plans
Post-retirement healthcare
Present value of obligation at end of year

The average duration of the deﬁ ned beneﬁ t obligation at 2 April 2016 is 18 years (last year 18 years).

2016
£m

98.0
3.0
1.0
(15.3)
86.7

156.3
(164.8)
100.8
(438.5)
(346.2)

2016
£m

8,596.5
262.4
(156.3)
118.4
(311.7)
(3.0)
9.0
8,515.3

2016
£m

8,147.5
98.0
1.0
247.1
(311.7)
(164.8)
100.8
(438.5)
11.8
7,691.2

7,682.3
0.9
8.0
7,691.2

2015
£m

82.4
2.0
1.0
(10.5)
74.9

(1,722.4)
(33.7)
83.9
1,478.5
(193.7)

2015
£m

6,729.4
293.0
1,722.4
143.0
(276.5)
(2.0)
(12.8)
8,596.5

2015
£m

6,540.4
82.4
1.0
282.5
(276.5)
(33.7)
83.9
1,478.5
(11.0)
8,147.5

8,135.8
0.7
11.0
8,147.5

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106
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

12 MARKS AND SPENCER SCOTTISH LIMITED PARTNERSHIP

Marks and Spencer plc is a general partner and the Marks & Spencer UK Pension Scheme is a limited partner of the Marks and Spencer
Scottish Limited Partnership (the Partnership). As such, the Partnership is consolidated into the results of the Group.

The Partnership holds £1.6bn (last year £1.6bn) of properties which have been leased back to Marks and Spencer plc. The Group retains
control over these properties, including the ﬂ exibility to substitute alternative properties into the partnership. The limited partnership
interest (held by the Marks & Spencer UK Pension Scheme) entitles the Pension Scheme to receive an annual distribution of £71.9m from
the proﬁ ts of the Partnership earned from rental income.

The Partnership liability to the Marks & Spencer UK Pension Scheme of £455.7m (last year £512.9m) is valued at the net present value of the
future expected distributions from the Partnership to the Marks & Spencer UK Pension Scheme as limited partner.

During the year to 2 April 2016 an interest charge of £14.7m (last year £16.1m) was recognised in the income statement representing the
unwind of the discount included in this obligation.

Under IAS 19, the Partnership interest of the Pension Scheme in the Marks and Spencer Scottish Limited Partnership is included within the
UK pension scheme assets, valued at £469.5m (last year £531.3m), refer to note 11E.

13 SHARE-BASED PAYMENTS

This year a charge of £16.0m was recognised for share-based payments (last year credit of £1.1m). Of the total share-based payments charge
£9.5m (last year £9.0m) relates to the Save As You Earn Share Option scheme and a charge of £1.1m (last year credit of £15.0m) relates to
Performance Share Plans. The remaining charge of £5.4m (last year £4.9m) is spread over the other schemes. Further details of the option
and share schemes that the Group operates are provided in the Remuneration Report on pages 50 to 71.

A. Save As You Earn Scheme
Sharesave, the Company’s Save As You Earn (SAYE) Scheme, was approved by shareholders at the 2007 AGM. Under the terms of the
scheme, the Board may off er options to purchase ordinary shares in the Company once in each ﬁ nancial year to those employees who enter
into Her Majesty’s Revenue & Customs (HMRC) approved SAYE savings contract. The Company has chosen to cap the maximum monthly
saving amount at £250 which is below the £500 per month allowed under HMRC Approved Schemes. The price at which options may be
off ered is 80% of the average mid-market price for three consecutive dealing days preceding the off er date. The options may normally be
exercised during the six month period after the completion of the SAYE contract.

Outstanding at beginning of the year
Granted
Exercised
Forfeited
Expired
Outstanding at end of year
Exercisable at end of year

2016

2015

Number of
options

Weighted average
exercise price

Number of
options

Weighted average
exercise price

29,530,523
10,437,215
(6,645,922)
(2,967,697)
(199,572)
30,154,547
1,936,860

357.6p
432.0p
302.6p
382.5p
317.2p
393.3p
315.3p

34,423,922
14,389,736
(14,602,805)
(4,485,417)
(194,913)
29,530,523
1,352,847

311.6p
369.0p
256.8p
371.5p
302.8p
357.6p
268.7p

For SAYE share options exercised during the period, the weighted average share price at the date of exercise was 443.9p (last year 471.8p).

The fair values of the options granted during the year have been calculated using the Black-Scholes model assuming the inputs
shown below:

Grant date
Share price at grant date
Exercise price
Option life in years
Risk-free rate
Expected volatility
Expected dividend yield
Fair value of option

2016
3-year plan

2015
3-year plan

Nov 15
520p
432p
3 years
0.9%
23.4%
3.7%
96p

Nov 14
460p
369p
3 years
0.9%
23.6%
3.9%
91p

Volatility has been estimated by taking the historic volatility in the Company’s share price over a three-year period.

The resulting fair value is expensed over the service period of three years on the assumption that 10% (last year 10%) of options will lapse
over the service period as employees leave the Group.

107
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

13 SHARE-BASED PAYMENTS CONTINUED

Outstanding options granted under the UK Employees SAYE Scheme are as follows:

Options granted

January 2012
January 2013
January 2014
January 2015
January 2016

Number of options

2016

2015

–
1,917,252
5,918,608
12,334,645
9,984,042
30,154,547

1,335,181
7,499,742
6,652,869
14,042,731
–
29,530,523

Weighted average remaining
contractual life (years)

2016

–
0.2
1.2
2.2
3.2
2.3

2015

Option price

0.3
1.3
2.3
3.3
–
2.4

258p
312p
405p
369p
432p
393p

B. Performance Share Plan*
The Performance Share Plan is the primary long-term incentive plan for approximately 150 of the most senior managers within the Group.
It was ﬁ rst approved by shareholders at the 2005 AGM and re-approved at the 2015 AGM. Under the Plan, annual awards, based on a
percentage of salary, may be off ered. The extent to which an award vests is measured over a three-year period against a balanced scorecard
of ﬁ nancial measures which for 2015/16 included Earnings Per Share (EPS), Return on Capital Employed (ROCE) and Revenue. The value of
any dividends earned on the vested shares during the three years will also be paid on vesting. Further details are set out in the Remuneration
Report on pages 50 to 71. Awards under this scheme have been made in each year since 2005.

During the year, 5,850,134 shares (last year 7,338,609) were awarded under the Plan. The weighted average fair value of the shares awarded
was 533.2p (last year 439.3p). As at 2 April 2016, 15,749,605 shares (last year 18,805,388) were outstanding under the scheme.

C. Deferred Share Bonus Plan*
The Deferred Share Bonus Plan was introduced in 2005/06 as part of the Annual Bonus Scheme for approximately 500 of the most senior
managers within the Group. As part of the scheme, the managers are required to defer a proportion of any bonus paid into shares which
will be held for three years. There are no further performance conditions on these shares, other than continued employment within the
Group and the value of any dividends earned during the deferred period will also be paid on vesting.

During the year, 1,044,961 shares (last year 20,822) have been awarded under the Plan in relation to the annual bonus. The fair value of the
shares awarded was 548.3p (last year 437.0p). As at 2 April 2016, 2,586,096 shares (last year 2,487,477) were outstanding under the scheme.

D. Restricted Share Plan*
The Restricted Share Plan was established in 2000 as part of the reward strategy for retention and recruitment of senior managers who are
vital to the success of the business. The Plan operates for senior managers below executive director level. Awards vest at the end of the
restricted period (typically between one and three years) subject to the participant still being in employment of the Group on the relevant
vesting date. The value of any dividends earned during the restricted period will also be paid at the time of vesting.

During the year, 221,681 shares (last year 1,001,076) have been awarded under the Plan. The weighted average fair value of the shares
awarded was 454.4p (last year 450.5p). As at 2 April 2016, 1,285,666 shares (last year 1,963,139) were outstanding under the scheme.

E. Republic of Ireland Save As You Earn Scheme
Sharesave, the Company’s Save As You Earn Scheme was introduced in 2009 to all employees in the Republic of Ireland for a ten-year period,
after approval by shareholders at the 2009 AGM. The scheme is subject to Irish Revenue rules which limit the maximum monthly saving to
€500 per month. The Company chose in 2009 to set a monthly savings cap of €320 per month to align the maximum savings amount to that
allowed within the UK scheme. When the savings contract is started, options are granted to acquire the number of shares that the total
savings will buy when the contract matures, at a discounted price set at the start of the scheme. The price at which the options may be
off ered is 80% of the average mid-market price for three consecutive days preceding the off er date. Options cannot normally be exercised
until a minimum of three years has elapsed.

During the year, 160,113 options (last year 121,086) were granted, at a fair value of 95.6p (last year 90.8p). As at 2 April 2016, 312,826 options
(last year 288,162) were outstanding under the scheme.

F. Marks and Spencer Employee Beneﬁ t Trust
The Marks and Spencer Employee Beneﬁ t Trust (the Trust) holds 4,087,837 (last year 3,912,120) shares with a book value of £20.6m (last year
£19.1m) and a market value of £16.6m (last year £20.7m). These shares were acquired by the Trust in the market and are shown as a reduction
in retained earnings in the consolidated statement of ﬁ nancial position. Awards are granted to employees at the discretion of Marks and
Spencer plc and the Trust agrees to satisfy the awards in accordance with the wishes of Marks and Spencer plc under senior executive share
schemes. Dividends are waived on all of these plans.

G. ShareBuy
In the current year, ShareBuy, the Company's new Share Incentive Plan was launched. This enables participants to buy shares directly from
their gross salary. This scheme does not attract an IFRS 2 charge.

* Nil cost options. For the purposes of calculating the number of shares awarded, the share price used is the average of the mid-market price for the ﬁ ve consecutive dealing days

preceding the grant date.

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B
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108
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

14 INTANGIBLE ASSETS

At 29 March 2014
Cost or valuation
Accumulated amortisation and impairment
Net book value
Year ended 28 March 2015
Opening net book value
Additions
Transfers
Disposals
Asset write-off s
Amortisation charge
Exchange diff erence
Closing net book value
At 28 March 2015
Cost or valuation
Accumulated amortisation, impairments and write-off s
Net book value
Year ended 2 April 2016
Opening net book value
Additions
Transfers
Asset impairments
Asset write-off s
Amortisation charge
Exchange diff erence
Closing net book value
At 2 April 2016
Cost or valuation
Accumulated amortisation, impairments and write-off s
Net book value

Goodwill
£m

129.6
(34.4)
95.2

95.2
–
–
–
–
–
0.1
95.3

129.7
(34.4)
95.3

95.3
6.2
–
(19.1)
–
–
0.3
82.7

136.2
(53.5)
82.7

Brands
£m

112.4
(50.5)
61.9

61.9
0.1
–
–
–
(5.3)
–
56.7

112.5
(55.8)
56.7

56.7
–
–
(32.5)
–
(5.3)
(0.2)
18.7

112.3
(93.6)
18.7

Computer
software
£m

Computer
software under
development
£m

878.6
(345.7)
532.9

532.9
79.4
130.1
(1.4)
(2.4)
(117.4)
(0.4)
620.8

1,087.7
(466.9)
620.8

620.8
92.9
91.2
(22.1)
(11.9)
(143.4)
0.2
627.7

1,272.0
(644.3)
627.7

118.4
–
118.4

118.4
98.5
(130.1)
–
(1.2)
–
(0.2)
85.4

86.6
(1.2)
85.4

85.4
93.9
(91.2)
–
(14.5)
–
0.1
73.7

89.4
(15.7)
73.7

Total
£m

1,239.0
(430.6)
808.4

808.4
178.0
–
(1.4)
(3.6)
(122.7)
(0.5)
858.2

1,416.5
(558.3)
858.2

858.2
193.0
–
(73.7)
(26.4)
(148.7)
0.4
802.8

1,609.9
(807.1)
802.8

Goodwill and indeﬁ nite life intangibles relate to the following groups of cash generating units (CGUs):

Net book value at 28 March 2015
Additions
Exchange diff erence
Asset impairments
Net book value at 2 April 2016

per una
£m

Czech Group
£m

69.5
–
–
–
69.5

15.4
–
0.4
(15.8)
–

India
£m

7.1
–
(0.1)
–
7.0

UK1
£m

–
6.2
–
–
6.2

Hungary
£m

3.3
–
–
(3.3)
–

1. The goodwill created on acquisition of the Lima (Bradford) S.à r.l. joint venture is supported by the UK retail business.

Total
goodwill
£m

M&S Mode
indeﬁ nite life
intangible
£m

Blue Harbour
indeﬁ nite life
intangible
£m

95.3
6.2
0.3
(19.1)
82.7

32.4
–
–
(32.4)
–

0.1
–
–
(0.1)
–

Acquisition in the year
On 29 February 2016, Marks and Spencer plc acquired the remaining 50% share in the joint venture, Lima (Bradford) S.à r.l. This company
owned an automated distribution centre in Bradford that is used by the Group. The acquisition resulted in the recognition of £6.2m of
goodwill, as a result of the consideration paid exceeding the fair value of the net assets acquired, attributable to the recognition of a
deferred tax liability in relation to the property. On 29 February 2016 the distribution centre was transferred to Marks and Spencer (Bradford)
Limited and on 1 March 2016 Lima (Bradford) S.à r.l. was put into liquidation. Refer to note 25 for further disclosures regarding this acquisition.

109
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

14 INTANGIBLE ASSETS CONTINUED

Impairment testing
Goodwill is not amortised, but tested annually for impairment with the recoverable amount being determined from value in use
calculations. Goodwill has been allocated for impairment testing purposes to groups of CGUs which include the combined retail and
wholesale businesses for each location.

Brands include the per una brand cost of £80.0m (net book value £18.7m). The per una brand is a deﬁ nite life intangible asset amortised on
a straight line basis over a period of 15 years and is only assessed for impairment where such indicators exist. At the beginning of the year,
the Group also held the M&S Mode brand at a cost of £32.4m. The M&S Mode brand was attributed an indeﬁ nite life as it gave the Group the
future right to use the ‘M&S’ brand in certain countries across Europe. Similar to goodwill, the M&S Mode brand is assessed for impairment
annually based on its value in use. The M&S Mode brand has been assessed for impairment across those European businesses.

The value in use calculations use cash ﬂ ows based on budgets prepared by management covering a three-year period. These budgets
have regard to historic performance and knowledge of the current market, together with management’s views on the future achievable
growth and the impact of committed initiatives. The cash ﬂ ows which derive from the budgets include ongoing capital expenditure
required to maintain the store network. Cash ﬂ ows beyond this three-year period are extrapolated using a long-term growth rate to
10 years or perpetuity.

Other than the detailed budgets, the key assumptions in the value in use calculations are the long-term growth rate and the risk
adjusted pre-tax discount rate. The long-term growth rate has been determined with reference to forecast GDP growth for the territories
in which these businesses operate. Management believe this is the most appropriate indicator of long-term growth rates that is available.
The long-term growth rate used is purely for the impairment testing of goodwill and brands under IAS 36 ‘Impairment of Assets’ and does
not reﬂ ect long-term planning assumptions used by the Group for investment proposals or for any other assessments. These growth rates
do not exceed the long-term average growth rate for the Group's retail businesses. The pre-tax discount rate is based on the Group’s
weighted average cost of capital, taking into account the cost of capital and borrowings, to which speciﬁ c market-related premium
adjustments are made.

In the period the following impairment charges have been recognised (within non-underlying items) by the Group.

> The performance of the Czech Group during the year has been heavily impacted by challenging trading conditions and weakening
currencies. These have impacted the business's ability to improve proﬁ tability year-on-year. As a result, the future cash ﬂ ows of the
business are no longer considered able to support the carrying value of the goodwill resulting in a full impairment of the goodwill
balance of £15.8m. This asset was reported within the International segment.

> The Hungarian retail market has been impacted by challenging trading conditions resulting in a decrease in gross proﬁ t and reduced
expectations of future growth. As a result, the future cash ﬂ ows of the business no longer support the carrying value of the goodwill
resulting in a full impairment of the goodwill balance of £3.3m being recognised in the International segment.

> The M&S Mode brand was acquired in 2011 giving the Group the right to use the M&S brand in European markets. The valuation of this asset

is supported by the cash ﬂ ows of both owned and franchised European businesses. The deterioration in the current year trading
performance across several of these markets (most notably Greece, France, the Czech Group and Hungary) and the consequential
impact on expected future year cash ﬂ ows have resulted in the carrying value of the brand no longer being supportable. As a result
a full impairment of £32.4m has been recognised in the year, also within the International segment.

> E-SAP is an enterprise management system used solely by the owned businesses in Greece, the Czech Republic and Hungary.

As highlighted above, the expected future cash ﬂ ows of these countries have been impacted by challenging trading conditions and
weakening currencies. As a result, the cash ﬂ ows can no longer support the carrying value of the E-SAP system and an impairment
charge of £18.7m has been recognised in the year in intangibles (with an additional £0.6m in ﬁ xtures, ﬁ ttings and equipment).

> As part of the ongoing review of the Clothing & Home business, signiﬁ cant changes in both the trading strategy and the store ranging

strategy were made. As a result of these changes, two modules within the new supply chain management system will no longer be used
and as a result investment in those modules has been written off , resulting in a one-off charge of £23.7m.

The values attributed to the key assumptions are as follows:

per una
Czech Group
India
UK
Hungary

Long-term growth rate

Pre-tax discount rate

2016
%

2.0
3.9
7.3
1.9
3.2

2015
%

2.0
1.9
6.8
–
1.4

2016
%

8.3
10.5
17.2
10.5
16.1

2015
%

8.6
10.1
15.4
–
11.0

The M&S Mode brand is tested based on the regions operating in the European business which are covered under the brand rights acquired.
The discount rates used to calculate value in use range from 12.9% to 30.2% (last year 9.3% to 27.9%). Cash ﬂ ows beyond the three-year period
have been extrapolated at long-term growth rates ranging from 0.0% to 3.5% (last year 1.0% to 4.0%).

Sensitivity analysis
Whilst management believe the assumptions are realistic it is possible that a further impairment would be identiﬁ ed for per una, UK or India
if any of the above key assumptions were changed signiﬁ cantly. A sensitivity analysis has been performed on each of these key assumptions
with other variables held constant. Management have concluded that there are no reasonably possible changes in any key assumptions that
would cause the carrying amount of goodwill or brands to exceed the value in use.

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110
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

15 PROPERTY, PLANT AND EQUIPMENT

At 29 March 2014
Cost
Accumulated depreciation, impairments and write-off s
Net book value
Year ended 28 March 2015
Opening net book value
Additions
Transfers
Disposals
Asset impairments
Asset write-off s
Depreciation charge
Exchange diff erence
Closing net book value
At 28 March 2015
Cost
Accumulated depreciation, impairments and write-off s
Net book value
Year ended 2 April 2016
Opening net book value
Additions
Transfers
Disposals
Asset impairments
Asset write-off s
Depreciation charge
Exchange diff erence
Closing net book value
At 2 April 2016
Cost
Accumulated depreciation, impairments and write-off s
Net book value

Land and
buildings
£m

2,871.7
(332.0)
2,539.7

2,539.7
19.0
14.5
(12.5)
(13.3)
(1.0)
(14.8)
(16.3)
2,515.3

2,855.1
(339.8)
2,515.3

2,515.3
115.2
1.7
(5.0)
(30.4)
–
(13.3)
11.4
2,594.9

2,981.6
(386.7)
2,594.9

Fixtures,
ﬁ ttings and
equipment
£m

Assets in the
course of
construction
£m

6,686.8
(4,336.8)
2,350.0

2,350.0
213.0
268.4
(0.2)
(35.4)
(6.6)
(385.1)
(10.0)
2,394.1

7,066.4
(4,672.3)
2,394.1

2,394.1
204.6
186.8
(0.6)
(24.3)
(2.9)
(400.8)
5.9
2,362.8

7,476.3
(5,113.5)
2,362.8

256.2
(6.0)
250.2

250.2
167.8
(282.9)
–
–
(11.4)
(0.2)
(1.8)
121.7

133.3
(11.6)
121.7

121.7
138.3
(188.5)
–
(1.9)
–
–
(0.2)
69.4

82.9
(13.5)
69.4

Total
£m

9,814.7
(4,674.8)
5,139.9

5,139.9
399.8
–
(12.7)
(48.7)
(19.0)
(400.1)
(28.1)
5,031.1

10,054.8
(5,023.7)
5,031.1

5,031.1
458.1
–
(5.6)
(56.6)
(2.9)
(414.1)
17.1
5,027.1

10,540.8
(5,513.7)
5,027.1

The net book value above includes land and buildings of £42.6m (last year £42.7m) and equipment of £0.2m (last year £1.1m) where the Group
is a lessee under a ﬁ nance lease.

Additions to property, plant and equipment during the year amounting to £nil (last year £nil) were ﬁ nanced by ﬁ nance leases.

16 OTHER FINANCIAL ASSETS

Non-current
Unlisted investments
Current
Short-term investments¹

2016
£m

3.0

19.1

2015
£m

3.0

11.6

1. Includes £3.6m (last year £1.2m) of money market deposits held by Marks and Spencer plc in an escrow account.

Non-current unlisted investments are carried as available-for-sale assets. Other ﬁ nancial assets are measured at fair value with changes in
their value taken to the income statement.

111
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

17 TRADE AND OTHER RECEIVABLES

Non-current
Other receivables
Prepayments and accrued income

Current
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Other receivables
Prepayments and accrued income

2016
£m

12.9
221.8
234.7

116.5
(0.7)
115.8
50.4
154.9
321.1

2015
£m

56.8
226.5
283.3

128.6
(4.9)
123.7
53.3
144.8
321.8

Trade and other receivables that were past due but not impaired amounted to £19.6m (last year £18.5m) and are mainly sterling
denominated. The directors consider that the carrying amount of trade and other receivables approximates their fair value. Included in
prepayments and accrued income is £19.4m (last year £13.5m) of accrued supplier income relating to rebates which have been earned but
not yet invoiced. Supplier income that has been invoiced but not yet settled against future trade creditor balances is included within trade
creditors where there is a right to off set. The remaining amount is immaterial. The impact on inventory is immaterial as these rebates relate
to food stock which has been sold through by the year end.

18 CASH AND CASH EQUIVALENTS

Cash and cash equivalents are £247.6m (last year £205.9m). The carrying amount of these assets approximates their fair value.

The eff ective interest rate on short-term bank deposits is 0.51% (last year 0.48%). These deposits have an average maturity of 48 days
(last year 42 days).

19 TRADE AND OTHER PAYABLES

Current
Trade and other payables
Social security and other taxes
Accruals and deferred income

Non-current
Other payables

20 BORROWINGS AND OTHER FINANCIAL LIABILITIES

Current
Bank loans and overdrafts¹
Finance lease liabilities

Non-current
Bank loans
6.250% US$500m medium-term notes 2017³
6.125% £400m medium-term notes 2019²
6.125% £300m medium-term notes 2021²
4.75% £400m medium-term notes 2025²
7.125% US$300m medium-term notes 2037³
Finance lease liabilities

Total

1. Bank loans and overdrafts include a £5.0m (last year £5.0m) loan from the Hedge End Park Limited joint venture (see note 29).
2. These notes are issued under Marks and Spencer plc’s £3bn European medium-term note programme and all pay interest annually.
3. Interest on these bonds is payable semi-annually.

2016
£m

2015
£m

1,021.9
49.8
546.0
1,617.7

967.6
57.7
617.1
1,642.4

353.0

319.7

2016
£m

297.1
0.4
297.5

0.2
356.5
427.7
303.3
425.7
213.1
48.2
1,774.7
2,072.2

2015
£m

278.9
0.5
279.4

0.1
341.9
428.8
302.5
420.2
204.3
48.1
1,745.9
2,025.3

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112
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

20 BORROWINGS AND OTHER FINANCIAL LIABILITIES CONTINUED

Finance leases
The minimum lease payments under ﬁ nance leases fall due as shown in the table on the following page. It is the Group’s policy to lease
certain properties and equipment under ﬁ nance leases. The average lease term for equipment is ﬁ ve years (last year six years) and 123 years
(last year 124 years) for property. Interest rates are ﬁ xed at the contract rate. All leases are on a ﬁ xed repayment basis and no arrangements
have been entered into for contingent payments. The Group’s obligations under ﬁ nance leases are secured by the lessors’ charges over the
leased assets.

21 FINANCIAL INSTRUMENTS

Treasury policy
The Group operates a centralised treasury function to manage the Group’s funding requirements and ﬁ nancial risks in line with the Board
approved treasury policies and procedures, and their delegated authorities.

The Group’s ﬁ nancial instruments, other than derivatives, comprise borrowings, cash and liquid resources and various items, such as trade
receivables and trade payables that arise directly from its operations. The main purpose of these ﬁ nancial instruments is to ﬁ nance the
Group’s operations.

The Group treasury function also enters into derivative transactions, principally interest rate swaps, cross currency swaps and forward
currency contracts. The purpose of these transactions is to manage the interest rate and foreign currency risks arising from the Group’s
operations and ﬁ nancing.

It remains the Group’s policy not to hold or issue ﬁ nancial instruments for trading purposes, except where ﬁ nancial constraints
necessitate the need to liquidate any outstanding investments. The treasury function is managed as a cost centre and does not
engage in speculative trading.

Financial risk management
The principal ﬁ nancial risks faced by the Group are liquidity and funding, interest rate, foreign currency and counterparty risks. The policies
and strategies for managing these risks are summarised on the following pages:

(a) Liquidity & funding risk
The risk that the Group could be unable to settle or meet its obligations at a reasonable price as they fall due:

> The Group’s funding strategy ensures a mix of funding sources off ering suffi cient headroom, maturity and ﬂ exibility and cost

eff ectiveness to match the requirements of the Group.

> Marks and Spencer plc is ﬁ nanced by a combination of retained proﬁ ts, bank borrowings, medium-term notes and committed syndicated

bank facilities.

> Operating subsidiaries are ﬁ nanced by a combination of retained proﬁ ts, bank borrowings and intercompany loans.

During the ﬁ nancial year, the Group renegotiated its committed syndicated bank revolving credit facility. The new facility of £1.1bn is set
to mature on 15 April 2021. This facility contains only one ﬁ nancial covenant being the ratio of earnings before interest, tax, depreciation,
amortisation and rents payable; to interest plus rents payable. The covenant is measured semi-annually. The Group also has a number of
undrawn uncommitted facilities available to it. At year end, these amounted to £100m (last year £100m), all of which are due to be reviewed
within a year. At the balance sheet date a sterling equivalent of £205m (last year £225m) was drawn under the committed facilities and £30m
(last year £nil) was drawn under the uncommitted facilities.

In addition to the existing borrowings, the Group has a Euro Medium Term note programme of £3bn, of which £1.1bn (last year £1.1bn) was in
issuance as at the balance sheet date.

113
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

21 FINANCIAL INSTRUMENTS CONTINUED

Financial risk management continued
(a) Liquidity & funding risk continued
The contractual maturity of the Group’s non-derivative ﬁ nancial liabilities (excluding trade and other payables (see note 19) and derivatives
is as follows:

Timing of cash ﬂ ows
Within one year
Between one and two years
Between two and ﬁ ve years
More than ﬁ ve years

Eff ect of discounting
At 28 March 2015
Timing of cash ﬂ ows
Within one year
Between one and two years
Between two and ﬁ ve years
More than ﬁ ve years

Eff ect of discounting
At 2 April 2016

Bank loans
and
overdrafts
£m

Syndicated
bank facility
£m

Medium-
term
notes
£m

Finance
lease
liabilities
£m

Partnership
liability to
the Marks &
Spencer
UK pension
£m

Total
borrowings
and other
ﬁ nancial
liabilities
£m

Derivative
assets1
£m

Derivative
liabilities1
£m

Total
derivative
assets and
liabilities
£m

(54.0)
(0.1)
–
–
(54.1)
–
(54.1)

(92.2)
–
–
–
(92.2)
–
(92.2)

(224.9)
–
–
–
(224.9)
–
(224.9)

(205.1)
–
–
–
(205.1)
–
(205.1)

(97.2)
(97.2)
(985.2)
(1,310.3)
(2,489.9)
792.2
(1,697.7)

(98.6)
(448.1)
(605.9)
(1,329.3)
(2,481.9)
755.6
(1,726.3)

(2.5)
(2.4)
(7.2)
(180.5)
(192.6)
144.0
(48.6)

(2.4)
(2.6)
(7.1)
(176.9)
(189.0)
140.4
(48.6)

(71.9)
(71.9)
(215.6)
(215.6)
(575.0)
62.1
(512.9)

(71.9)
(71.9)
(215.6)
(143.7)
(503.1)
47.4
(455.7)

2,214.0
238.3
414.0
459.6
3,325.9

(2,092.4)
(224.5)
(390.0)
(440.8)
(3,147.7)

121.6
13.8
24.0
18.8
178.2

(450.5)
(171.6)
(1,208.0)
(1,706.4)
(3,536.5)
998.3
(2,538.2)

(470.2) 2,020.2
562.7
(522.6)
(828.6)
61.4
465.6
(1,649.9)
3,109.9
(3,471.3)
943.4
(2,527.9)

(1,965.5)
(526.0)
(41.2)
(427.0)
(2,959.7)

54.7
36.7
20.2
38.6
150.2

1. Derivative assets and derivative liabilities amounts represent the fair value as at the balance sheet date of the foreign exchange forward contracts and the forecast interest payments

on the swap contracts together with the ﬁ nal exchange of notional at the end of the contracts. Such cash ﬂ ows were translated into GBP using spot rates as of balance sheet date for the
cross currency interest rate swaps.

The present value of ﬁ nance lease liabilities is as follows:

Within one year
Later than one year and not later than ﬁ ve years
Later than ﬁ ve years
Total

2016
£m

(0.4)
(1.6)
(46.6)
(48.6)

2015
£m

(0.5)
(1.0)
(47.1)
(48.6)

(b) Counterparty risk
Counterparty risk exists where the Group can suff er ﬁ nancial loss through default or non-performance by ﬁ nancial institutions with whom it
transacts.

Exposures are managed in accordance with the Group treasury policy which limits the value that can be placed with each approved
counterparty to minimise the risk of loss. The minimum long-term rating for all counterparties is long-term Standard & Poor's (A-)/Moody’s
(A3) (BBB+ for committed lending banks). In the event of a rating by one agency being diff erent to the other, reference will be made to Fitch
to determine the casting vote of the rating group. In the absence of a Fitch rating the lower rating will prevail. Limits are reviewed regularly by
senior management. The credit risk of these ﬁ nancial instruments is estimated as the fair value of the assets resulting from the contracts.

S
S
E
N
S
U
B
R
U
O

E
C
N
A
M
R
O
F
R
E
P
R
U
O

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F

114
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

21 FINANCIAL INSTRUMENTS CONTINUED

Financial risk management continued
(b) Counterparty risk continued
The table below analyses the Group’s short-term investments and derivative assets by credit exposure excluding bank balances, store cash
and cash in transit:

Short-term investments1
Derivative assets2
At 28 March 2015

Short-term investments1
Derivative assets2
At 2 April 2016

AAAm
£m

–
–
–

AAA
£m

–
–
–

AAAm
£m

AAA
£m

–
–
–

Credit rating of counterparty³

AA-
£m

3.5
21.5
25.0

AA-
£m

25.1
42.6
67.7

A+
£m

39.9
21.8
61.7

A+
£m

60.6
33.3
93.9

A
£m

57.4
52.1
109.5

A
£m

63.5
23.4
86.9

AA
£m

–
–
–

AA
£m

–
–
–

A-
£m

–
46.9
46.9

A-
£m

–
–
–

BBB+
£m

–
–
–

BBB+
£m

–
18.2
18.2

Total
£m

100.8
142.3
243.1

Total
£m

149.2
117.5
266.7

1. Includes cash on deposit and money market funds held by Marks and Spencer Scottish Limited Partnership, Marks and Spencer plc and Marks & Spencer General Insurance. Excludes cash

at hand and in transit £98.4m (last year £105.1m).

2. Excludes the embedded derivative within the lease host contract.
3. Standard & Poor's equivalent rating shown as reference to the majority credit rating of the counterparty from either Standard & Poor's, Moody's or Fitch where applicable.

The Group has very low retail credit risk due to transactions being principally of a high volume, low value and short maturity.

The maximum exposure to credit risk at the balance sheet date was as follows: trade receivables £114m (last year £129m), other receivables
£63m (last year £110m), cash and cash equivalents £248m (last year £206m) and derivatives £146m (last year £194m).

(c) Foreign currency risk
Transactional foreign currency exposures arise from both the export of goods from the UK to overseas subsidiaries, and from the import
of materials and goods directly sourced from overseas suppliers.

Group treasury hedges these exposures principally using forward foreign exchange contracts progressively covering up to 100% out to
18 months. Where appropriate, hedge cover can be taken out for longer than 18 months, with Board approval. The Group is primarily
exposed to foreign exchange risk in relation to sterling against movements in US dollar and euro.

As at the balance sheet date the gross notional value in sterling terms of forward foreign exchange sell or buy contracts amounted to
£1,640m (last year £1,591m) with a weighted average maturity date of ﬁ ve months (last year seven months). The Group designates the
foreign exchange forwards in a cash ﬂ ow hedge against variability in foreign currency cash ﬂ ows arising from the recognition of inventory
and the subsequent settlement of the related trade payable.

Gains and losses in equity on forward foreign exchange contracts as at 2 April 2016 will be released to the income statement at various dates
over the following 15 months (last year 16 months) from the balance sheet date.

The Group also holds a number of cross currency swaps to re-designate its ﬁ xed rate US dollar debt to ﬁ xed rate sterling debt. These are
reported as cash ﬂ ow hedges.

The Group uses a combination of foreign currency debt and derivatives to hedge balance sheet translation exposures. As at the balance
sheet date €nil (last year €144m) of currency debt and HK$1,245m (last year HK$1,398m) of derivatives were hedging overseas net assets.

The Group also hedges foreign currency intercompany loans where these exist. Forward foreign exchange contracts in relation to the
hedging of the Group’s foreign currency intercompany loans are designated as held for trading with fair value movements being recognised
in the income statement. The corresponding fair value movement of the intercompany loan balance results in an overall £nil impact on the
income statement. As at the balance sheet date, the gross notional value of intercompany loan hedges was £289m (last year £412m).

After taking into account the hedging derivatives entered into by the Group, the currency and interest rate exposure of the Group’s ﬁ nancial
liabilities excluding short-term payables and the liability to the Marks & Spencer UK Pension Scheme is set out below:

Currency
Sterling
Euro
Other

2016

Fixed rate
£m

Floating rate
£m

Total
£m

Fixed rate
£m

1,343.7
6.2
0.1
1,350.0

716.7
0.8
4.7
722.2

2,060.4
7.0
4.8
2,072.2

1,315.4
5.8
–
1,321.2

2015

Floating rate
£m

568.2
105.6
30.3
704.1

Total
£m

1,883.6
111.4
30.3
2,025.3

The ﬂ oating rate sterling and euro borrowings are linked to interest rates related to LIBOR. These rates are for periods between one and six
months.

As at the balance sheet date and excluding ﬁ nance leases, the ﬁ xed rate sterling borrowings are at an average rate of 5.3% (last year 5.3%)
and the weighted average time for which the rate is ﬁ xed is seven years (last year eight years).

115
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

21 FINANCIAL INSTRUMENTS CONTINUED

Financial risk management continued
(d) Interest rate risk
The Group is exposed to interest rate risk in relation to sterling, US dollar and euro variable rate ﬁ nancial assets and liabilities.

The Group’s policy is to use derivative contracts where necessary to maintain a mix of ﬁ xed and ﬂ oating rate borrowings to manage this
risk. The structure and maturity of these derivatives correspond to the underlying borrowings and are accounted for as fair value or cash
ﬂ ow hedges as appropriate.

At the balance sheet date, ﬁ xed rate borrowings amounted to £1,349.9m (last year £1,321.1m) representing the public bond issues and
ﬁ nance leases, amounting to 65% (last year 66%) of the Group’s gross borrowings.

The eff ective interest rates at the balance sheet date were as follows:

Committed and uncommitted borrowings
Medium term notes
Finance leases

Derivative ﬁ nancial instruments

Current
Forward foreign exchange contracts – cash ﬂ ow hedges

– held for trading
– net investment hedges

Non-current
Cross currency swaps
– cash ﬂ ow hedges
Forward foreign exchange contracts – cash ﬂ ow hedges
Interest rate swaps
Embedded derivative (see notes 5
and 25)

– fair value hedge

2016
%

1.0
5.3
4.1

2015

Assets
£m

114.8
3.1
–
117.9

6.3
7.3
38.5

23.7
75.8

2015
%

0.9
5.3
4.1

Liabilities
£m

(7.2)
(0.4)
(0.1)
(7.7)

(19.9)
(0.1)
–

–
(20.0)

2016

Assets
£m

Liabilities
£m

69.7
1.6
0.8
72.1

27.3
5.4
41.3

–
74.0

(26.7)
(1.8)
–
(28.5)

–
(0.2)
–

–
(0.2)

The Group holds a number of interest rate swaps to re-designate its sterling ﬁ xed debt to ﬂ oating debt. These are reported as fair value
hedges. The ineff ective portion recognised in the proﬁ t or loss that arises from fair value hedges amounts to a loss of £0.2m (last year £0.3m
gain) as the loss on the hedged items was £3.0m (last year £33.5m loss) and the gain on the hedging instruments was a loss of £2.8m (last
year £33.8m gain). The Group also holds a number of cross currency swaps to re-designate its ﬁ xed rate US dollar debt to ﬁ xed rate sterling
debt. These are reported as cash ﬂ ow hedges.

Sensitivity analysis
The table below illustrates the estimated impact on the income statement and equity as a result of market movements in foreign exchange
and interest rates in relation to the Group’s ﬁ nancial instruments. The directors consider that a 2% +/- (last year 2%) movement in interest and
a 20% +/- (last year 20%) weakening in sterling against the relevant currency represents a reasonably possible change. However this analysis
is for illustrative purposes only.

The table excludes ﬁ nancial instruments that expose the Group to interest rate and foreign exchange risk where such risk is fully hedged
with another ﬁ nancial instrument. Also excluded are trade receivables and payables as these are either sterling denominated or the foreign
exchange risk is hedged.

Interest rates: the impact in the income statement due to changes in interest rates reﬂ ects the eff ect on the Group’s ﬂ oating rate debt as at
the balance sheet date. The impact in equity reﬂ ects the fair value movement in relation to the Group’s transactional foreign exchange cash
ﬂ ow hedges and the net investment hedges at the balance sheet date. The impact in equity reﬂ ects the fair value movement in relation to
the Group's cross-currency swaps.

Foreign exchange: the impact from foreign exchange movements reﬂ ects the change in the fair value of the Group’s transactional foreign
exchange cash ﬂ ow hedges and the net investment hedges at the balance sheet date. The equity impact shown for foreign exchange
sensitivity relates to derivative and non-derivative ﬁ nancial instruments hedging net investments. This value is expected to be fully off set
by the re-translation of the hedged foreign currency net assets leaving a net equity impact of zero.

At 28 March 2015
Impact on income statement: gain/ (loss)
Impact on other comprehensive income: (loss)/gain
At 2 April 2016
Impact on income statement: gain/ (loss)
Impact on other comprehensive income: (loss)/gain

2% decrease in
interest rates
£m

2% increase in
interest rates
£m

20% weakening in
sterling
£m

20% strengthening
in sterling
£m

9.2
(15.2)

9.2
(0.8)

(12.5)
8.1

(11.1)
1.0

–
169.8

–
136.0

–
(113.2)

–
(90.7)

S
S
E
N
S
U
B
R
U
O

E
C
N
A
M
R
O
F
R
E
P
R
U
O

E
C
N
A
N
R
E
V
O
G

S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F

116
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

21 FINANCIAL INSTRUMENTS CONTINUED

Off setting of ﬁ nancial assets and liabilities
The following tables set out the ﬁ nancial assets and ﬁ nancial liabilities which are subject to off setting, enforceable master netting
arrangements and similar agreements. Amounts which are set off against ﬁ nancial assets and liabilities in the Group’s balance sheet are
set out below. For trade and other receivables and trade and other payables, amounts not off set in the Statement of Financial Position
but which could be off set under certain circumstances are also set out.

At 2 April 2016
Trade and other receivables
Derivative ﬁ nancial assets
Cash and cash equivalents

Trade and other payables
Derivative ﬁ nancial liabilities
Bank loans and overdrafts

At 28 March 2015
Trade and other receivables
Derivative ﬁ nancial assets
Cash and cash equivalents

Trade and other payables
Derivative ﬁ nancial liabilities
Bank loans and overdrafts

Gross ﬁ nancial
assets/(liabilities)
£m

Gross ﬁ nancial
(liabilities)/assets
set off
£m

Net ﬁ nancial
assets/(liabilities)
per statement of
ﬁ nancial position
£m

Related amounts
not set off in the
statement of
ﬁ nancial position
£m

31.6
146.1
39.3
217.0

(259.3)
(28.7)
(90.8)
(378.8)

(29.5)
–
(39.3)
(68.8)

29.5
–
39.3
68.8

2.1
146.1
–
148.2

(229.8)
(28.7)
(51.5)
(310.0)

–
(28.7)
–
(28.7)

–
28.7
–
28.7

Gross ﬁ nancial
assets/(liabilities)
£m

Gross ﬁ nancial
(liabilities)/assets
set off
£m

Net ﬁ nancial
assets/(liabilities)
per statement of
ﬁ nancial position
£m

Related amounts
not set off in the
statement of
ﬁ nancial position
£m

37.0
170.0
45.0
252.0

(295.0)
(27.7)
(60.3)
(383.0)

(37.0)
–
(42.1)
(79.1)

37.0
–
42.1
79.1

–
170.0
2.9
172.9

(258.0)
(27.7)
(18.2)
(303.9)

–
(27.7)
–
(27.7)

–
27.7
–
27.7

Net
£m

2.1
117.4
–
119.5

(229.8)
–
(51.5)
(281.3)

Net
£m

–
142.3
2.9
145.2

(258.0)
–
(18.2)
(276.2)

The gross ﬁ nancial assets and liabilities set off in the Statement of Financial Position primarily relate to cash pooling arrangements with
banks. Amounts which do not meet the criteria for off setting on the Statement of Financial Position but could be settled net in certain
circumstances principally relate to derivative transactions under ISDA (International Swaps and Derivatives Association) agreements
where each party has the option to settle amounts on a net basis in the event of default of the other party.

Fair Value Hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of ﬁ nancial instruments by valuation technique:

> Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities;

> Level 2: not traded in an active market but the fair values are based on quoted market prices or alternative pricing sources with reasonable
levels of price transparency. The Group’s Level 2 ﬁ nancial instruments include interest rate and foreign exchange derivatives. Fair value is
calculated using discounted cash ﬂ ow methodology, future cash ﬂ ows are estimated based on forward exchange rates and interest rates
(from observable market curves) and contract rates, discounted at a rate that reﬂ ects the credit risk of the various counterparties for
those with a long maturity; and

> Level 3: techniques which use inputs which have a signiﬁ cant eff ect on the recorded fair value that are not based on observable market
data. At 28 March 2015 the fair value of the embedded derivative was calculated using an option valuation model based on the present
value of a 35 year lease with annual lease payments increasing by Retail Price Index (RPI), capped and ﬂ oored at 1.5% and 2.5% respectively
and then discounted back to the valuation date. The valuation was sensitive to changes in RPI. As a result of the acquisition of Lima
(Bradford) S.à r.l. in the period, the host contract that contained the embedded derivative is now held between Group companies.
As such, the Group no longer holds any third party Level 3 assets or liabilities.

117
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

21 FINANCIAL INSTRUMENTS CONTINUED

Fair Value Hierarchy continued
At the end of the reporting period, the Group held the following ﬁ nancial instruments at fair value:

Level 1
£m

Level 2
£m

Level 3
£m

2016

Total
£m

Level 1
£m

Level 2
£m

Level 3
£m

2015

Total
£m

Assets measured at fair value
Financial assets at fair value through
proﬁ t or loss
– Trading derivatives
Derivatives used for hedging
Embedded derivatives (see note 5)
Short-term investments

Liabilities measured at fair value
Financial liabilities at fair value through
proﬁ t or loss
– Trading derivatives
Derivatives used for hedging

–
–
–
–

–
–

1.4
144.7
–
19.1

(1.8)
(26.9)

–
–
–
–

–
–

1.4
144.7

––

19.1

–
–
–

–

3.1
166.9
23.7
11.6

–
–
23.7
–

3.1
166.9

11.6

(1.8)
(26.9)

–
–

(0.4)
(27.3)

–
–

(0.4)
(27.3)

There were no transfers between Level 1 and Level 2 fair value measurements. In addition to the above, the Group has £3.0m (last year
£3.0m) in unlisted equity securities measured at cost.

The following table represents the changes in Level 3 instruments:

Opening balance
Fair value (loss)/gain recognised in the income statement
Derecognition
Closing balance

2016
£m

23.7
(2.0)
(21.7)
–

2015
£m

22.4
1.3
–
23.7

During the year the Group purchased Lima (Bradford) S.à r.l. This resulted in the derecognition of the embedded derivative as the host lease
contract is now between subsidiaries of the Group (see note 25).

The gains recognised in the income statement relate to the valuation of the embedded derivative in a lease contract up until the acquisition
date. The fair value movement of the embedded derivative of £2.0m loss (last year £1.3m gain) and subsequent derecognition of the asset
(£21.7m) is treated as an adjustment to reported proﬁ t (see note 5).

Fair value of ﬁ nancial instruments
With the exception of the Group’s ﬁ xed rate bond debt and the Partnership liability to the Marks & Spencer UK Pension Scheme, there were
no material diff erences between the carrying value of non-derivative ﬁ nancial assets and ﬁ nancial liabilities and their fair values as at the
balance sheet date.

The carrying value of the Group’s ﬁ xed rate bond debt (Level 1 equivalent) was £1,726.4m (last year £1,697.7m), the fair value of this debt
was £1,868.3m (last year £1,883.6m). The carrying value of the Partnership liability to the Marks & Spencer UK Pension Scheme (Level 3
equivalent) is £455.7m (last year £512.9m) and the fair value of this liability is £445.3m (last year £501.3m).

Capital policy
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide optimal returns
for shareholders and to maintain an effi cient capital structure to reduce the cost of capital.

In doing so the Group’s strategy is to maintain a capital structure commensurate with an investment grade credit rating and to retain
appropriate levels of liquidity headroom to ensure ﬁ nancial stability and ﬂ exibility. To achieve this strategy the Group regularly monitors
key credit metrics such as the gearing ratio, cash ﬂ ow to net debt (see note 28) and ﬁ xed charge cover to maintain this position. In addition,
the Group ensures a combination of appropriate committed short-term liquidity headroom with a diverse and balanced long-term debt
maturity proﬁ le. As at the balance sheet date the Group’s average debt maturity proﬁ le was seven years (last year eight years). During the
year the Group maintained an investment grade credit rating of Baa3 (stable) with Moody’s and BBB- (stable) with Standard & Poor’s.

In order to maintain or realign the capital structure, the Group may adjust the number of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets to reduce debt.

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U
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A
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U
O

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C
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A
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A
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A
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A
N
I
F

118
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

22 PROVISIONS

At 28 March 2015
Provided in the year
Released in the year
Utilised during the year
Exchange diff erences
Discount rate unwind
Reclassiﬁ cation from trade and other payables
At 2 April 2016
Analysed as:
Current
Non-current

Property
£m

Restructuring
£m

42.9
29.0
(9.9)
(10.3)
0.3
0.4
–
52.4

27.9
7.4
(15.6)
(10.0)
0.1
–
–
9.8

Other
£m

7.5
3.6
(6.0)
(1.3)
–
–
–
3.8

2016
£m

78.3
40.0
(31.5)
(21.6)
0.4
0.4
–
66.0

14.0
52.0

2015
£m

76.2
33.7
(19.3)
(32.8)
(2.0)
0.3
22.2
78.3

46.2
32.1

Property provisions relate to onerous lease contracts and dilapidations primarily arising as a result of the closure of stores in the UK and
Western Europe. These provisions are expected to be utilised over the period to the end of each speciﬁ c lease.

Restructuring provisions relate to the estimated costs of several strategic programmes, the current restructure of the logistics network
and the closure of the Balkans operations (see note 5). These provisions are expected to be utilised within ﬁ ve years.

23 DEFERRED TAX

Deferred tax is provided under the balance sheet liability method using the tax rate at which the balances are expected to unwind of 20%,
19% and 18% as applicable (last year 20%) for UK diff erences and local tax rates for overseas diff erences. Details of the changes to the UK
corporation tax rate and the impact on the Group are described in note 7.

The movements in deferred tax assets and liabilities (after off setting balances within the same jurisdiction as permitted by
IAS 12 ‘Income Taxes’) during the year are shown below:

Deferred tax assets/(liabilities):

At 30 March 2014
Credited/(charged) to income statement
(Charged)/credited to equity/other comprehensive income
At 28 March 2015
At 29 March 2015
Credited/(charged) to the income statement
(Charged)/credited to equity/other comprehensive income
Other balance sheet movement
At 2 April 2016

Land and
buildings
temporary
diff erences
£m

Capital
allowances in
excess of
depreciation
£m

Pension
temporary
diff erences
£m

Other
short-term
temporary
diff erences
£m

Total UK
deferred tax
£m

Overseas
deferred tax
£m

(49.3)
2.3
–
(47.0)
(47.0)
6.4
–
(6.2)
(46.8)

(99.9)
(6.1)
–
(106.0)
(106.0)
25.9
–
–
(80.1)

(97.3)
(2.3)
(55.2)
(154.8)
(154.8)
0.7
(51.4)
–
(205.5)

14.9
(4.3)
(13.7)
(3.1)
(3.1)
3.0
(1.8)
–
(1.9)

(231.6)
(10.4)
(68.9)
(310.9)
(310.9)
36.0
(53.2)
(6.2)
(334.3)

(11.0)
0.4
7.4
(3.2)
(3.2)
(2.5)
2.4
–
(3.3)

Total
£m

(242.6)
(10.0)
(61.5)
(314.1)
(314.1)
33.5
(50.8)
(6.2)
(337.6)

Other short-term temporary diff erences relate mainly to employee share options and ﬁ nancial instruments.

Other balance sheet movements, categorised as land and building temporary diff erences, relate to recognition of a deferred tax liability on
the acquisition of the remaining 50% stake in the Lima (Bradford) S.à r.l joint venture.

The deferred tax liability on land and buildings temporary diff erences is reduced by the beneﬁ t of capital losses with a tax value of £49.9m
(last year £48.4m). Due to uncertainty over their future use, no beneﬁ t has been recognised in respect of unexpired trading losses carried
forward in overseas jurisdictions with a tax value of £22.3m (last year £43.5m).

No deferred tax is recognised in respect of undistributed earnings of overseas subsidiaries and joint ventures unless a material liability
is expected to arise on distribution of these earnings under applicable tax legislation. There is a potential tax liability in respect of
undistributed earnings of £5.4m (last year £4.4m) however this has not been recognised on the basis the distribution can be controlled
by the Group.

119
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

24 ORDINARY SHARE CAPITAL

Issued and fully paid ordinary shares of 25p each
At start of year
Shares issued on exercise of share options
Shares cancelled through share buyback
At end of year

2016

£m

1,647,814,746
6,797,209
(31,647,148)
1,622,964,807

412.0
1.7
(7.9)
405.8

1,632,247,974
15,566,772
–
1,647,814,746

2015

£m

408.1
3.9
–
412.0

Issue of new shares
6,797,209 (last year 15,567,772) ordinary shares having a nominal value of £1.7m (last year £3.9m) were allotted during the year under the
terms of the Company’s schemes which are described in note 13. The aggregate consideration received was £20.6m (last year £40.8m).

Share buyback
31,647,148 (last year nil) ordinary shares having a nominal value of £7.9m (last year £nil) were bought back and subsequently cancelled during
the year in accordance with the authority granted by shareholders in the Annual General Meeting in July 2015. The aggregate consideration
paid, including directly attributable costs, was £150.7m (last year £nil).

25 BUSINESS COMBINATIONS

On 29 February 2016, Marks and Spencer plc purchased the remaining 50% share in the joint venture Lima (Bradford) S.à r.l. This company
owned an automated distribution centre in Bradford used by the Group. The distribution centre was transferred to another group company
on the same day and on 1 March 2016 Lima (Bradford) S.à r.l. was put into liquidation.

This purchase has been accounted for as a stepped acquisition under IFRS 3 'Business Combinations.' The deemed disposal of the original
50% share of the joint venture resulted in the recognition of a £27.1m gain in the period, which has been recognised as a non-underlying
credit in the consolidated income statement as disclosed in note 5. This gain arose as a result of the requirement to fair value the initial
50% share held by Marks and Spencer plc.

A summary of how the gain arose is detailed below:

Fair value of previously owned 50% interest
Repayment of intercompany loan
Deemed proceeds received by Marks and Spencer plc for the existing 50% interest
Carrying value of the investment in the joint venture
Gain arising on acquisition

The acquisition resulted in the recognition of goodwill, as shown below:

Property, plant and equipment
Other net liabilities
Total identiﬁ able assets
Cash paid
Goodwill arising on acquisition

2016
£m

56.2
(24.0)
32.2
(5.1)
27.1

2016
£m

112.6
(62.6)
50.0
56.2
6.2

This acquisition resulted in the recognition of £6.2m of goodwill, as a result of the consideration paid exceeding the fair value of the net
assets acquired, attributable to the recognition of a deferred tax liability in relation to the property. The goodwill is not expected to be
deductible for income tax purposes.

The purchase of this entity resulted in the distribution centre being fully owned by the Group. Therefore the embedded derivative
previously recognised by the Group in relation to the lease agreement for the distribution centre has been eliminated. The derecognition
of this embedded derivative resulted in the recognition of a £21.7m loss in the consolidated income statement. This has been recognised as
a non-underlying item, as disclosed in notes 5 and 21.

26 CONTINGENCIES AND COMMITMENTS

A. Capital commitments

Commitments in respect of properties in the course of construction
Software capital commitments

2016
£m

129.2
17.1
146.3

2015
£m

102.9
25.5
128.4

B. Other material contracts
In the event of a material change in the trading arrangements with certain warehouse operators, the Group has a commitment to purchase
property, plant and equipment which is currently owned and operated by the warehouse operators on the Group’s behalf (at values ranging
from historical net book value to market value).

See note 12 for details on the partnership arrangement with the Marks & Spencer UK Pension Scheme.

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120
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

26 CONTINGENCIES AND COMMITMENTS CONTINUED

C. Commitments under operating leases
The Group leases various stores, offi ces, warehouses and equipment under non-cancellable operating lease agreements. The leases have
varying terms, escalation clauses and renewal rights.

2016
£m

2015
£m

Total future minimum rentals payable under non-cancellable operating leases are as follows:
Within one year
– Later than one year and not later than ﬁ ve years
– Later than ﬁ ve years and not later than ten years
– Later than ten years and not later than 15 years
– Later than 15 years and not later than 20 years
– Later than 20 years and not later than 25 years
– Later than 25 years
Total

The total non-cancellable future sublease payments to be received are £36.1m (last year £41.2m).

27 ANALYSIS OF CASH FLOWS GIVEN IN THE STATEMENT OF CASH FLOWS

Cash ﬂ ows from operating activities

Proﬁ t on ordinary activities after taxation
Income tax expense
Finance costs
Finance income
Operating proﬁ t
(Increase)/decrease in inventories
Decrease/(increase) in receivables
Increase in payables
Non-underlying operating cash (outﬂ ows)/inﬂ ows
Depreciation, amortisation and underlying asset impairments and write-off s
Share-based payments
Pension costs charged against operating proﬁ t
Cash contributions to pension schemes
Non-underlying non-cash items
Non-underlying operating proﬁ t items
Cash generated from operations

28 ANALYSIS OF NET DEBT

A. Reconciliation of movement in net debt

311.3
1,108.4
1,099.4
542.8
351.9
225.8
970.3
4,609.9

2016
£m

404.4
84.4
116.4
(21.1)
584.1
(22.5)
3.3
32.4
(12.9)
576.8
16.0
102.0
(118.4)
(50.3)
200.8
1,311.3

291.6
1,074.1
1,091.0
549.3
348.8
242.2
1,074.3
4,671.3

2015
£m

481.7
118.3
116.8
(15.5)
701.3
45.7
(13.0)
87.6
28.6
550.1
(1.1)
85.4
(143.0)
(53.7)
61.2
1,349.1

At
29 March 2015
£m

Cash ﬂ ow
£m

Exchange and
other non-cash
movements
£m

At
2 April 2016
£m

Net cash
Bank loans, overdrafts and syndicated bank facility (see note 20)
Less: amounts treated as ﬁ nancing (see below)

Cash and cash equivalents (see note 18)
Net cash per statement of cash ﬂ ows
Current ﬁ nancial assets (see note 16)
Debt ﬁ nancing
Bank loans, and overdrafts treated as ﬁ nancing (see above)
Medium-term notes (see note 20)
Finance lease liabilities (see note 20)
Partnership liability to the Marks & Spencer UK Pension Scheme (see note 12)
Debt ﬁ nancing
Net debt

(279.0)
260.9
(18.1)
205.9
187.8
11.6

(260.9)
(1,611.8)
(48.6)
(501.3)
(2,422.6)
(2,223.2)

(16.7)
(16.8)
(33.5)
38.0
4.5
7.2

16.8
–
2.4
56.0
75.2
86.9

(1.6)
1.6
–
3.7
3.7
0.3

(1.6)
(2.0)
(2.4)
–
(6.0)
(2.0)

(297.3)
245.7
(51.6)
247.6
196.0
19.1

(245.7)
(1,613.8)
(48.6)
(445.3)
(2,353.4)
(2,138.3)

121
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE FINANCIAL STATEMENTS
CONTINUED

28 ANALYSIS OF NET DEBT CONTINUED

B. Reconciliation of net debt to statement of ﬁ nancial position

Statement of ﬁ nancial position and related notes
Cash and cash equivalents (see note 18)
Current ﬁ nancial assets (see note 16)
Bank loans and overdrafts (see note 20)
Medium-term notes – net of hedging derivatives
Finance lease liabilities (see note 20)
Partnership liability to the Marks & Spencer UK Pension Scheme (see notes 12 and 21)

Interest payable included within related borrowing and the partnership liability to the
Marks & Spencer UK Pension Scheme
Total net debt

2016
£m

2015
£m

247.6
19.1
(297.3)
(1,656.1)
(48.6)
(455.7)
(2,191.0)

52.7
(2,138.3)

205.9
11.6
(279.0)
(1,652.0)
(48.6)
(512.9)
(2,275.0)

51.8
(2,223.2)

29 RELATED PARTY TRANSACTIONS

A. Subsidiaries
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not
disclosed in this note. Transactions between the Company and its subsidiaries are disclosed in the Company’s separate ﬁ nancial statements.

B. Hedge End joint venture
A loan of £5.0m was received from the joint venture on 9 October 2002. It is repayable on ﬁ ve business days’ notice and was renewed on
1 January 2015. Interest was charged on the loan at 2.0% until 31 December 2009 and 0.5% thereafter.

C. Lima (Bradford) joint venture
A loan facility was provided to the joint venture on 11 August 2008, on which interest was charged at 2.7% above 3-month LIBOR. On 29
February 2016, Marks and Spencer plc purchased the remaining 50% share in the joint venture Lima (Bradford) S.à r.l. At this date £24.0m
was drawn down on the loan facility and this was fully repaid on acquisition. In addition, the Group had entered into a rental agreement
with the joint venture and £4.5m (last year £4.9m) of rental charges were incurred up to the date of acquisition. Refer to note 25 for further
disclosures regarding this acquisition.

D. Marks & Spencer Pension Scheme
Details of other transactions and balances held with the Marks & Spencer UK Pension Scheme are set out in notes 11 and 12.

E. Key management compensation

Salaries and short-term beneﬁ ts
Share-based payments
Total

2016
£m

7.5
0.3
7.8

2015
£m

7.3
0.3
7.6

Key management comprises Board directors only. Further information about the remuneration of individual directors is provided in
the Remuneration Report. During the year, key management have purchased goods at the Group’s usual prices less a 20% discount.
This discount is available to all staff employed directly by the Group in the UK.

F. Other related party transactions
Supplier transactions occurred during the year between the Group and a company controlled by Martha Lane Fox’s partner. Martha served
as a non-executive director of the Group up to 2 April 2016. These transactions amounted to £2.6m during the year (last year £2.5m) with an
outstanding trade payable of £0.2m at 2 April 2016 (last year £0.2m).

30 SUBSEQUENT EVENTS

On 25 May 2016 the directors announced proposals for a signiﬁ cant base rate increase for Qualiﬁ ed Customer Assistants to £8.50 per hour
outside London and £9.65 in Greater London, as well as pay rises for Section Coordinators and Section Managers, with eff ect from April 2017.
The directors also announced proposals for a fairer, simpler and more consistent approach to pay and premiums.

In addition, also eff ective from April 2017, the directors are proposing to make changes to the UK deﬁ ned beneﬁ t (DB) pension scheme,
which has been closed to new members since 2002, to close it to future accrual. We would enrol current deﬁ ned beneﬁ t members in the
deﬁ ned contribution savings plan from April 2017. This has had no impact on the results for the year ended 2 April 2016.

These proposals are subject to consultation and the potential non-underlying charges for both the pay and pension changes for year
ending 1 April 2017 could be in the range of c£100m to £150m. This non-underlying charge is largely driven by the DB pension changes
because when current active members become deferred members, the annual increase in their pensionable salary is linked to CPI as
opposed to being capped at 1%.

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122
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

COMPANY STATEMENT OF FINANCIAL POSITION

Assets
Non-current assets
Investments in subsidiary undertakings
Total assets
Liabilities
Current liabilities
Amounts owed to subsidiary undertakings
Total liabilities
Net assets
Equity
Ordinary share capital
Share premium account
Capital redemption reserve
Merger reserve
Retained earnings
Total equity

Notes

As at
2 April 2016
£m

As at
28 March 2015
£m

9,235.8
9,235.8

9,226.4
9,226.4

2,559.2
2,559.2
6,676.6

405.8
411.3
2,210.5
1,397.3
2,251.7
6,676.6

2,429.5
2,429.5
6,796.9

412.0
392.4
2,202.6
1,397.3
2,392.6
6,796.9

The ﬁ nancial statements were approved by the Board and authorised for issue on 24 May 2016. The ﬁ nancial statements also comprise the
notes on pages 123 to 125.

Steve Rowe Chief Executive Offi cer Helen Weir Chief Finance Offi cer

COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

At 30 March 2014
Proﬁ t for the year
Dividends
Capital contribution for share-based
payments
Shares issued on exercise of employee
share options
At 28 March 2015
At 29 March 2015
Proﬁ t for the year
Dividends
Capital contribution for
share-based payments
Shares purchased in buyback
Shares issued on exercise of
employee share options
At 2 April 2016

Ordinary
share capital
£m
408.1
–
–

Share
premium
account
£m
355.5
–
–

Capital
redemption
reserve
£m
2,202.6
–
–

Merger
reserve
£m
1,397.3
–
–

Retained
earnings
£m
2,382.1
282.2
(280.7)

Total
£m
6,745.6
282.2
(280.7)

–

3.9
412.0
412.0
–
–

–
(7.9)

1.7
405.8

–

9.0

36.9
392.4
392.4
–
–

–
–

18.9
411.3

–
2,202.6
2,202.6
–
–

–
7.9

–
1,397.3
1,397.3
–
–

–
–

–
2,210.5

–
1,397.3

–
2,392.6
2,392.6
302.1
(301.7)

9.4
(150.7)

–
2,251.7

40.8
6,796.9
6,796.9
302.1
(301.7)

9.4
(150.7)

20.6
6,676.6

COMPANY STATEMENT OF CASH FLOWS

Cash ﬂ ow from investing activities
Dividends received
Net cash generated from investing activities
Cash ﬂ ows from ﬁ nancing activities
Shares issued on exercise of employee share options
Shares purchased in buyback
Drawdown/(repayment) of intercompany loan
Equity dividends paid
Net cash used in ﬁ nancing activities
Net cash inﬂ ow from activities
Cash and cash equivalents at beginning and end of year

53 weeks ended
2 April 2016
£m

52 weeks ended
28 March 2015
£m

302.1
302.1

20.6
(150.7)
129.7
(301.7)
(302.1)
–
–

282.2
282.2

40.8
–
(42.3)
(280.7)
(282.2)
–
–

123
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE COMPANY FINANCIAL STATEMENTS

C1 ACCOUNTING POLICIES

The Company’s accounting policies are the same as those set out in note 1 of the Group ﬁ nancial statements, except as noted below.

Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment. The Company grants share-based
payments to the employees of subsidiary companies. Each period the fair value of the employee services received by the subsidiary
as a capital contribution from the Company is reﬂ ected as an addition to investments in subsidiaries.

Loans from other Group undertakings and all other payables are initially recorded at fair value, which is generally the proceeds received.
They are then subsequently carried at amortised cost. The loans are non-interest bearing and repayable on demand.

The Company’s ﬁ nancial risk is managed as part of the Group’s strategy and policies as discussed in note 21 of the Group ﬁ nancial statements.

In accordance with the exemption allowed by Section 408(3) of the Companies Act 2006, the Company has not presented its own income
statement or statement of comprehensive income.

C2 EMPLOYEES

The Company had no employees during the current or prior year. Directors received emoluments in respect of their services to the
Company during the year of £956,000 (last year £960,000). The Company did not operate any pension schemes during the current
or preceding year.

C3 AUDITOR'S REMUNERATION

Auditor's remuneration in respect of the Company’s annual audit has been borne by its subsidiary Marks and Spencer plc and has been
disclosed on a consolidated basis in the Company’s consolidated ﬁ nancial statements as required by Section 494(4)(a) of the Companies
Act 2006.

C4 DIVIDENDS

Dividends on equity ordinary shares
Paid ﬁ nal dividend
Paid interim dividend

2016
per share

2015
per share

11.6p
6.8p
18.4p

10.8p
6.4p
17.2p

2016
£m

190.8
110.9
301.7

2015
£m

176.2
104.5
280.7

In addition, the directors have proposed a ﬁ nal dividend in respect of the year ended 2 April 2016 of 11.9p per share (last year 11.6p),
amounting to a dividend of £192.6m (last year £190.8m). This payment is subject to approval of shareholders at the Annual General Meeting,
to be held on 12 July 2016.

In addition, the Board have declared the payment of a special dividend of 4.6p per share amounting to a dividend of c£75m. Both the special
and the ﬁ nal dividends will be paid on 15 July 2016 to the shareholders on the register of members as at close of business on 3 June 2016.
In line with the requirements of IAS 10 ‘Events after the Reporting Period’, these dividends have not been recognised within these results.

C5 RELATED PARTY TRANSACTIONS

During the year, the Company has received dividends from Marks and Spencer plc of £302.1m (last year £282.2m) and increased its loan
from Marks and Spencer plc by £129.7m (last year decreased by £42.3m). The outstanding balance was £2,559.2m (last year £2,429.5m) and
is non-interest bearing. There were no other related party transactions.

C6 INVESTMENTS

A. Investments in subsidiary undertakings

Beginning of the year
Additional investment in subsidiary undertakings relating to share-based payments
End of year

2016
£m

9,226.4
9.4
9,235.8

2015
£m

9,217.4
9.0
9,226.4

Shares in subsidiary undertakings represent the Company’s investment in Marks and Spencer plc. The directors believe that the carrying
value of the investments is supported by their underlying net assets.

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124
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED

C6 INVESTMENTS CONTINUED

B Related undertakings
In accordance with section 409 of the Companies Act 2006, a full list of related undertakings, the country of incorporation and the eff ective
percentage of equity owned, as at 2 April 2016 is disclosed below:

Subsidiary undertakings registered in the UK(i)

Name

Amethyst Leasing (Holdings) Limited

Hedge End Park Limited
Registered Offi ce: 33 Holborn, London, EC1N 2HT

M&S Limited

Manford (Textiles) Limited

Marks & Spencer Company Archive CIC

Marks & Spencer Outlet Limited

Marks & Spencer Simply Foods Limited

Marks and Sparks Limited

Share Class

£1 Ordinary

Marks and Spencer (Northern Ireland) Limited

£1 Ordinary

Marks and Spencer (Property Investments) Limited

£1 Ordinary

Marks and Spencer (Property Ventures) Limited

£1 Ordinary

Marks and Spencer Chester Limited

Marks and Spencer France Limited

£1 Ordinary

Marks and Spencer Guernsey Investments LLP

£1 Ordinary

Marks and Spencer International Holdings Limited

£1 Ordinary

Proportion
of shares
held by the
Company
(%)

Proportion
of shares
held by
subsidiary
(%)

100

Name

Share Class

Marks and Spencer Pension Trust Investments Limited £1 Ordinary

Marks and Spencer Pension Trust Limited(ii)

£1 A Ordinary

Marks and Spencer plc

£1 B Ordinary

£1 C Ordinary

£0.25 Ordinary

Marks and Spencer Property Developments Limited £1 Ordinary

Marks and Spencer Property Holdings Limited

£1 Ordinary

Marks and Spencer Scottish Limited Partnership(iii)
Registered Offi ce: 2-28 St Nicholas Street,
Aberdeen, AB10 1BU

Marks and Spencer Shared Services Limited

Minterton Services Limited

Marks and Spencer (Bradford) Limited

Per Una Group Limited

Ruby Properties (Enﬁ eld) Limited

St. Michael (Textiles) Limited

St. Michael Finance plc

Partnership interest

£1 Ordinary

Proportion
of shares
held by the
Company
(%)

Proportion
of shares
held by
subsidiary
(%)

100

UK registered subsidiaries exempt from audit
The following UK subsidiaries will take advantage of the audit exemption set out within section 479A of the Companies House Act 2006 for
the year ended 2 April 2016. Unless otherwise stated, the undertakings listed below are registered at Waterside House, 35 North Wharf Road,
London, W2 1NW, United Kingdom, and all have a single class of ordinary share with a nominal value of £1.

Name

Amethyst Leasing (Properties) Limited

Busyexport Limited

Marks and Spencer (Inital LP) Limited
Registered Offi ce:

Marks and Spencer (Property Ventures) Limited

Marks and Spencer 2005 (Brooklands Store) Limited

Marks and Spencer 2005
(Chester Satellite Store) Limited

Marks and Spencer 2005 (Chester Store) Limited

Marks and Spencer 2005
(Fife Road Kingston Store) Limited

Marks and Spencer 2005
(Glasgow Sauchiehall Store) Limited

Marks and Spencer 2005 (Hedge End Store) Limited

Marks and Spencer 2005 (Kensington Store) Limited

Marks and Spencer 2005
(Kingston-on-Thames Satellite Store) Limited

Proportion
of shares
held by the
Company
(%)

Proportion
of shares
held by
subsidiary
(%)

100

Company
Number

04246934

04411320

SC315365

02239799

05502608

05502519

05502542

Name

Marks and Spencer 2005
(Kingston-on-Thames Store) Limited

Marks and Spencer 2005
(Parman House Kingston Store) Limited

Marks and Spencer 2005 (Pudsey Store) Limited

Marks and Spencer 2005
(Warrington Gemini Store) Limited

Marks and Spencer Hungary Limited

Marks and Spencer Investments

Marks and Spencer Property Holdings Limited

05502598

Ruby Properties (Cumbernauld) Limited

05502546

05502538

05502478

05502523

Ruby Properties (Hardwick) Limited

Ruby Properties (Long Eaton) Limited

Ruby Properties (Thorncliff e) Limited

Ruby Properties (Tunbridge) Limited

Simply Food (Property Investments)

Simply Food (Property Ventures Investments)

Proportion
of shares
held by the
Company
(%)

Proportion
of shares
held by
subsidiary
(%)

100

Company
Number

05502520

05502588

05502544

05502502

08540784

04903061

02100781

04922798

02100781

04716031

04716110

04716032

05502543

02239799

The Company will guarantee the debts and liabilities of the above UK subsidiary undertakings at the balance sheet date of £6.3m in accordance with section 479C of the Companies Act 2006.
The Company has assessed the probability of loss under the guarantee as remote.

(i) All companies registered at Waterside House, 35 North Wharf Road, London, W2 1NW, United Kingdom, unless otherwise stated.
(ii) In accordance with the articles of association of Marks and Spencer Pension Trust Limited, the holders of B and C Ordinary shares are both directors of that company.
(iii) Marks and Spencer (Initial LP) Limited and Marks and Spencer Pension Trust Limited are the limited partners; Marks and Spencer plc is the General Partner.

125
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED

C6 INVESTMENTS CONTINUED

B Related undertakings continued
International subsidiary undertakings(i)

Name

Registered Address

Country

Share Class

Proportion
of shares
held by
subsidiary
(%)

Name

Registered Address

Country

Share Class

Proportion
of shares
held by
subsidiary
(%)

Marks and Spencer
(Australia) Pty Limited

Aurora Place, Level 19,
88 Phillip Street, Sydney,
NSW 2000, Australia

Australia

Marks and Spencer
GmbH

Sterngasse 13, Vienna, Austria Austria

Belgium

Bulgaria

Marks and Spencer
(Belgium) Limited

4th Floor, 97 Rue Royale,
1000 Brussels, Belgium

Marks and Spencer
Bulgaria EOOD
(in liquidation)

17 Sveta Gora Str.,
1164 Soﬁ a, Bulgaria.

Marks & Spencer
Canada Incorporated

40 Wellington Row, Saint John
NB E2L 4S3, Canada

Marks & Spencer
Holdings Canada
Incorporated

40 Wellington Row, Saint John
NB E2L 4S3, Canada

AUD 2 Ordinary

€35,000 Ordinary

€1.21 Ordinary

€ Ordinary

Canada

CAD 1 Common

CAD NPV

CAD 1 Pref

Canada

CAD 1 Common

Marks & Spencer Inc.

40 Wellington Row, Saint John
NB E2L 4S3, Canada

Canada

Marks and Spencer
(Shanghai) Limited

Suite 2901-2902,
2299 Yanan Road,
Changning, Shanghai, China

Marks and Spencer
Commercial
(Shanghai) Ltd

863 Nanjing Road West,
Jin An District,
Shanghai, China

China

Marks and Spencer
Croatia d.o.o.
(in liquidation)

Draškoviceva ul. 82, 10000,
Zagreb, Croatia

Croatia

Marks and Spencer
Czech Republic a.s

Praha 4, Michle, Vyskocilova
1481/4, Czech Republic

Czech Republic

Marks and Spencer
Services S.R.O

Praha 4, Michle, Vyskocilova
1481/4, Czech Republic

Czech Republic

Oü MSF Estonia

Andis SARL

Paldiski mnt 102, Tallinn,
13522, Estonia

Estonia

48 Rue de la Chaussée-d'Antin,
75009 Paris, France

France

Marks & Spencer
Marinopoulos Greece SA

33-35 Ermou Street,
Athens , Greece

Ignazia Limited

Heritage Hall, Le Marchant
Street, St Peter Port,
GY1 4JH, Guernsey

Marks and Spencer
(Alderney) Limited

Linwood, Alles es Fees,
Alderney

Teranis Limited

Marks and Spencer
(Asia Paciﬁ c) Limited

Heritage Hall, Le Marchant
Street, St Peter Port,
GY1 4JH, Guernsey

Suite 1009, 10/F, Tower 6,
The Gateway, 9 Canton Road,
Kowloon, Hong Kong

Marks and Spencer
(Hong Kong)
Investments Limited

Suite 1009, 10/F, Tower 6,
The Gateway, 9 Canton Road,
Kowloon, Hong Kong

Greece

Guernsey

Hong Kong

Marks and Spencer
(Hungary) Kft

Fehérvári út 50-52,
1117 Budapest, Hungary

Hungary

Marks and Spencer
(India) pvt Limited

Tower C, RMZ Millenia, 4th Floor,
Lake Wing, #1 Murphy Road,
Bangalore, 560008, India

India

Marks and Spencer
Reliance India Pvt Ltd

4th Floor, Court House,
Lokmanya Tilak Marg, Dhobi
Talao, Mumbai, 400 002, India

Supreme Tradelinks
Private Limited

First Floor, Anand Bhawan,
Sansar Chandra Road,
Jaipur, 302 001, India

Aprell Limited

24-29 Mary Street,
Dublin 1, Ireland

India

Ireland

100

CAD 1
Preference Class
A

CAD 1 Common

Registered
Capital

HRK Ordinary

CZK 1,000
Ordinary

CZK 100,000
Ordinary

CZK 1,000,000
Ordinary

Registered
Capital

Registered
capital

€1,060 Ordinary

€3 Ordinary

£1 Ordinary

99.99

£1 Ordinary

100

£1 Ordinary

99.99

HKD 1 Ordinary

100

HKD1 Ordinary

HUF 280,500,000
Quota

INR10 Ordinary

INR 10 Class A

INR 10 Class B

INR 10 Class C(ii)

INR 10 Ordinary

€1.25 Ordinary

100

Marks and Spencer
(Ireland) Limited

24-27 Mary Street,
Dublin 1, Ireland

Marks and Spencer
Pension Trust (Ireland)
Limited(iii)

24-27 Mary Street,
Dublin 1, Ireland

Marks and Spencer
(Israel) Limited

31 Ahad Haam Street,
Tel Aviv 65202, Israel

Marks & Spencer (Italia)
S.r.l. (in liquidation)

Via Felice Casati 20,
20124 Milan, Italy

Per Una Italia SRL
(in liquidation)

Piazza Martini 3/4,
59100 Prato, Italy

Marks and Spencer
(Jersey) Limited

7-11 Britannia Place,
Bath Street, St Helier

MSF Latvia SIA

UAB MSF Lithuania

Ieriku iela 3, Riga, LV-1084,
Latvia

Gedimino pr. 20, Vilnius,
Lithuania

Lima (Bradford) Sarl
(in liquidation)

34-38 Avenue de la Liberte,
R.C.S. Luxembourg B 109222,
L-1930, Luxembourg

Ireland

Israel

Italy

Jersey

Latvia

Lithuania

Luxembourg

€1.25 Ordinary

100

Limited by
guarantee

NIS Ordinary

USD Quota

€ Quota

£1 Ordinary

€142 Ordinary

€28.96 Ordinary

100

£20 Ordinary

100

Marks and Spencer
Montenegro DOO
Podgorica (in liquidation)

C/O Eurofast Global Limited,
112 Bul Svetog Petra Cetinjskog,
8100 Podgorica, Montenegro

Montenegro

M & S Mode
International B.V.

Prins Bernhardplein 200, 1097
JB, Amsterdam, Netherlands

Netherlands

Marks and Spencer
(Nederland) B.V.

Prins Bernhardplein 200, 1097
JB, Amsterdam, Netherlands

Netherlands

Marks and Spencer BV Prins Bernhardplein 200, 1097

Netherlands

€ Ordinary

€100 Ordinary

€450 Ordinary

JB, Amsterdam, Netherlands

€100 Ordinary

Marks and Spencer
Nederland (Retail) B.V.

Muntplein 10C, 1012 WR
Amsterdam, Netherlands

Netherlands

€100.00 Ordinary

100

€450 Ordinary

PLN 50.00
Ordinary

€1 Ordinary

RON 18.30
Ordinary

RSD Quotas

No Par Value
Ordinary

Registered
capital

€ Ordinary

100

ZAR 2 Ordinary

€1 Ordinary

SEK 100 Ordinary

THB 100.00
Ordinary

TRL 25.00
Ordinary

100

USD 1 Common

100

USD 1 Common

100

Marks and Spencer
Stores B.V.

Prins Bernhardplein 200, 1097
JB, Amsterdam, Netherlands

Netherlands

Marks and Spencer
Poland Sp z o.o.

Ul. Marszałkowska 104/122,
00-017 Warszawa, Poland

Poland

Marks & Spencer
(Portugal) Lda.

Avenida da Liberdade 249,
1250-143, Lisbon, Portugal

Marks and Spencer
Romania SA

3rd Floor Apartment
11, 17-19 Virgiliu Street, 1st
District, Bucharest, Romania

Portugal

Romania

Marks and Spencer
Doo Beograd

Patrisa Lumumbe no. 70,
11000 Belgrade

Serbia

Marks and Spencer
(Singapore) Investments
Pte. Ltd.

3 Anson Road, #27-01
Springleaf Tower, 079909,
Singapore

MSF Slovakia S.R.O

Ivanská cesta 16 , Bratislava,
821 04 , Slovakia

Marks and Spencer
Ljubljana LLC
(in liquidation)

Šmartinska cesta 130,
1000 Ljubljana

Singapore

Slovakia

Slovenia

Marks and Spencer (SA)
(Pty) Limited

Woolworths House,
93 Longmarket Street,
Cape Town 8001, South Africa

South Africa

M&S (Spain) S.L.

Calle Fuencarral No. 119,
28010 , Madrid, Spain

Marks & Spencer AB
(in liquidation)

Bragevagen 23, SE-182 64
Djursholm, Sweden, Sweden

Marks and Spencer
(Thailand) Limited

Marks and Spencer
Clothing Textile
Trading L.L.C

Marks & Spencer
Services Inc.

Marks & Spencer
Ventures Finance LLC

1011 Supalai Grand Tower,
24th Floor, Rama 3 Road,
Kwaeng Chongnonsi,
Khet Yannawa,
Bangkok 10120, Thailand

Havalani Karsisi istanbul
Dunya Ticaret Merkezi,
A3 Blok, Kat:11 Yesilkoy,
Bakirkoy, Istanbul, Turkey

2711 Centerville Road,
Suite 400, Wilmington DE
19808, United States

Spain

Sweden

Thailand

Turkey

United States

NOTE: A number of the companies listed are legacy companies which no longer serve any operational purpose.
(i) The shares of all international undertakings are held by companies within the Group other than the Company (Marks and Spencer Group plc).
(ii) INR 10 Class C shares 100% owned by JV partner.
(iii) No share capital as the company is limited by guarantee.

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126
MARKS AND SPENCER GROUP PLC
FINANCIAL STATEMENTS

GROUP FINANCIAL RECORD

Income statement
Revenue¹
UK
International

Operating proﬁ t/(loss)¹
UK
International
Total operating proﬁ t
Net interest payable
Pension ﬁ nance income
Proﬁ t on ordinary activities before taxation

Analysed between:
Underlying proﬁ t before tax
Adjustments to reported proﬁ t
Income tax expense
Proﬁ t after taxation

Basic earnings per share¹

Underlying basic earnings per share¹

Dividend per share declared in respect
of the year3
Dividend cover

Retail ﬁ xed charge cover

Basic earnings/Weighted average
ordinary shares in issue
Underlying basic earnings/Weighted
average ordinary shares in issue

Underlying earnings per share/
Dividend per share
Operating proﬁ t before depreciation
and operating lease charges/
Fixed charges

Statement of ﬁ nancial position
Net assets (£m)
Net debt² (£m)
Capital expenditure (£m)
Stores and space
UK stores
UK selling space (m sq ft)
International stores
International selling space (m sq ft)
Staffi ng (full-time equivalent)
UK
International

1. Based on continuing operations.
2. Excludes accrued interest.
3. Excludes Special dividend.

2016
53 weeks
£m

2015
52 weeks
£m

2014
52 weeks
£m

2013
52 weeks
£m

2012
52 weeks
£m

9,470.8
1,084.6
10,555.4

9,223.1
1,088.3
10,311.4

9,155.7
1,154.0
10,309.7

8,951.4
1,075.4
10,026.8

8,868.2
1,066.1
9,934.3

627.3
(43.2)
584.1
(110.6)
15.3
488.8

689.6
(200.8)
(84.4)
404.4

640.6
60.7
701.3
(111.8)
10.5
600.0

661.2
(61.2)
(118.3)
481.7

600.3
94.2
694.5
(125.8)
11.7
580.4

622.9
(42.5)
(74.4)
506.0

632.8
120.2
753.0
(212.9)
7.1
547.2

648.1
(100.9)
(102.4)
444.8

658.0
88.5
746.5
(114.1)
25.6
658.0

705.9
(47.9)
(168.4)
489.6

2016
53 weeks

2015
52 weeks

2014
52 weeks

2013
52 weeks

2012
52 weeks

24.9p

29.7p

32.5p

28.3p

32.5p

35.0p

33.1p

32.2p

31.9p

34.9p

18.7p

18.0p

17.0p

1.9x

1.8x

1.9x

2.1x

3.7x

3.6x

3.4x

3.5x

3.9x

3,443.4
2,138.3
525.1

3,198.8
2,223.2
526.6

2,706.7
2,463.6
710.0

2,519.5
2,614.3
821.3

2,778.8
1,857.1
737.5

914
17.0
468
6.1

852
16.8
480
6.0

798
16.6
455
5.8

766
16.4
418
5.4

731
16.0
387
4.7

52,388
6,507

52,247
6,849

54,678
6,498

51,835
5,683

51,938
5,116

127
ANNUAL REPORT AND FINANCIAL STATEMENTS 2016

SHAREHOLDER INFORMATION

ANALYSIS OF SHARE REGISTER

Ordinary shares
As at 2 April 2016 the Company had 172,754 registered holders of ordinary shares. Their shareholdings are analysed below. It should be
noted that many of our private investors hold their shares through nominee companies, therefore the percentage of private holders is
much higher (we estimate approximately 30%) than that indicated.

Range of shareholding

1 – 500
501 – 1,000
1,001 – 2,000
2,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – 1,000,000
1,000,001 – Highest
Total

Category of shareholder

Private
Institutional and corporate
Total

2016/17 ﬁ nancial calendar and key dates
2 June 2016
3 June 2016
7 July 2016
12 July 2016
15 July 2016
9 November 2016*
17 November 2016*
18 November 2016*
January 2017*
13 January 2017*

Number of
holdings

89,227
33,329
25,789
17,281
4,430
2,120
408
170
172,754

Balance as at
2 April 2016

51.65
19.29
14.93
10.00
2.56
1.23
0.24
0.10

17,057,432
24,934,675
37,005,494
52,941,332
30,579,322
50,232,253
140,098,723
1,270,115,576
100.00 1,622,964,807

1.05
1.54
2.28
3.26
1.88
3.10
8.63
78.26
100.00

Number of
shareholders

165,727
7,027
172,754

Percentage
of total
shareholders

Number of
ordinary
shares

Percentage
of issued
share capital

95.93
4.07

248,322,893
1,374,641,914
100.00 1,622,964,807

15.30
84.70
100.00

Ex-dividend date – Final dividend
Record date to be eligible for the ﬁ nal dividend
Results – Quarter 1 Trading Statement†
Annual General Meeting (11am)
Final dividend payment date for the year to 2 April 2016
Results – Half Year†
Ex-dividend date – Interim dividend
Record date to be eligible for the interim dividend
Results – Quarter 3 Trading Statement†
Interim dividend payment date

† Those who have registered for electronic communication or news alerts at marksandspencer.com/thecompany will receive notiﬁ cation by email when this is available.
* Provisional dates.

MANAGING YOUR SHARES ONLINE

Shareholders can manage their holdings
online by registering with Shareview, the
internet based platform provided by
Equiniti. Registration is a straightforward
process and allows shareholders to:

> Sign up for electronic shareholder

communication.

> Receive trading updates by email.

> View all of their shareholdings in one

place.

> Update their records following a change

of address.

> Have dividends paid into their bank

account.

> Vote in advance of company general

meetings.

M&S encourages shareholders to sign
up for electronic communication as the
reduction in printing costs and paper
usage makes a valuable contribution to our
Plan A commitments. It is also beneﬁ cial to
shareholders, who can be notiﬁ ed by email
whenever we release trading updates to the
London Stock Exchange, which are not
mailed to shareholders.

To ﬁ nd out more information about the
services off ered by Shareview and to
register, please visit shareview.co.uk.

ANNUAL GENERAL MEETING 2016

This year’s AGM will be held at Wembley
Stadium, Wembley, London HA9 0WS
on Tuesday 12 July 2016. The meeting will
start at 11am and registration will be open
from 9.30am.

DIVIDENDS

Paid in January and July each year (subject
to Board and shareholder approval).
We encourage shareholders to have their
dividends paid directly into their bank
account to ensure effi cient payment and
that cleared funds are received on the
payment date. Shareholders who receive
their dividend payments in this way receive
a single, annual dividend conﬁ rmation
annually in January, covering both
dividend payments made during the tax
year. We are able to send individual dividend
conﬁ rmation statements if preferred.

Shareholders can change their preferred
dividend payment method online at
shareview.co.uk or by contacting Equiniti.

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128
MARKS AND SPENCER GROUP PLC
DIRECTORS’ REPORT: FINANCIAL STATEMENTS

SHAREHOLDER INFORMATION
CONTINUED

CHANGING YOUR ADDRESS

CAPITAL GAINS TAX

USEFUL CONTACTS

You should inform Equiniti of your new
address as soon as possible to avoid
missing important correspondence relating
to your shareholding. If you hold 1,500
shares or fewer and reside in the UK, this
can be done quickly over the telephone.
Holdings of more than 1,500 shares will
require a written instruction quoting your
full name, 11-digit shareholder reference
number (if known) and both your previous
and new addresses.

DUPLICATE DOCUMENTS

Many shareholders have more than one
account on the share register and receive
duplicate documentation from us as a
result. If you fall into this group, please
contact Equiniti to combine your accounts.

CORPORATE WEBSITE

You can access the corporate website at
marksandspencer.com/thecompany.

The M&S corporate website provides a
wealth of useful information for
shareholders and should be your ﬁ rst port
of call for general queries relating to the
Company and your shares. Shareholders
are also encouraged to register to receive
news alerts by email. These include all the
ﬁ nancial news releases throughout the year
that are not sent to shareholders by post.

The directors are responsible for the
maintenance and integrity of the ﬁ nancial
information on our website. This information
has been prepared under the relevant
accounting standards and legislation.

SHAREGIFT

If you have a very small shareholding that
is uneconomical to sell, you may want to
consider donating it to ShareGift (registered
charity no. 1052686), a charity that
specialises in the donation of small,
unwanted shareholdings to good causes.
Find out more by visiting sharegift.org
or by calling +44 (0)207 930 3737.

An increasing number of
shareholders have been contacting
us to report unsolicited and
suspicious phone calls received from
purported ‘brokers’ who off er to buy
their shares at a price far in excess of
their market value. It is unlikely that
ﬁ rms authorised by the Financial
Conduct Authority (FCA) will contact
you with off ers like this. As such, we
believe these calls are part of a scam,

For the purpose of Capital Gains Tax, the
price of an ordinary share on 31 March
1982 was 153.5p, which when adjusted
for the 1 for 1 scrip issue in 1984, gives
a ﬁ gure of 76.75p. Following the capital
reorganisation in March 2002, HMRC has
conﬁ rmed the base cost for CGT purposes
was 372.35p (81.43%) for an ordinary share
and 68.75p (18.75%) for a B share.

AMERICAN DEPOSITARY
RECEIPTS (ADRS)

The Company has a Level 1 ADR
programme. This enables US investors
to purchase Marks & Spencer American
Depository Shares (ADS) in US dollars ‘over
the counter’. The Company has chosen to
have the ADRs quoted on the OTC market’s
highest tier, International PremierQX.

For information on OTCQX go to otcqx.com
For Deutsche Bank, email:
DB@amstock.com
ADR website: adr.db.com
Toll free callers within the US:
1 866 249 2593
For those calling outside the US:
+1 (718) 921 8137

SHAREHOLDER QUERIES

The Company’s share register is maintained
by our registrar, Equiniti. Shareholders
with queries relating to their shareholding
should contact Equiniti directly using one
of the methods listed to the right. For more
general queries, shareholders should
consult the ‘Investors’ section of our
corporate website.

M&S Registered Offi ce
Waterside House,
35 North Wharf Road,
London W2 1NW
Telephone +44 (0)20 7935 4422
Registered in England and Wales
(no. 4256886)

Registrar
Equiniti Limited,
Aspect House,
Spencer Road,
Lancing,
West Sussex BN99 6DA
United Kingdom
Telephone 0345 609 0810 and outside
the UK +44 (0) 121 415 7071
Online: help.shareview.co.uk
(from here, you will be able to securely
email Equiniti with your enquiry).

Group Secretary and Head
of Corporate Governance
Amanda Mellor

Additional documents
An interactive version of our 2015/16
Annual Report is available online at
marksandspencer.com/annualreport2016.

Additionally, both the Annual Report
and Strategic Report are available
for download in pdf format at
marksandspencer.com/thecompany.

Alternatively, call 0800 591 697.

Students
Please note, students are advised to
source information from our website.

General queries
Customer queries: 0345 302 1234
Shareholder queries: 0345 609 0810
Alternatively, email us at
chairman@marks-and-spencer.com.

SHAREHOLDER SECURITY

commonly referred to as a ‘boiler
room’. The callers obtain your details
from publicly available sources of
information, including the Company’s
share register, and can be extremely
persistent and persuasive.

Shareholders are cautioned to be
very wary of any unsolicited advice,
off ers to buy shares at a discount,
sell your shares at a premium or

requests to complete conﬁ dentiality
agreements with the callers.
Remember, if it sounds too good
to be true, it probably is!

More detailed information and
guidance is available on our
corporate website. An overview
of current common scams is
available on the Action Fraud
website actionfraud.police.uk.

Page

INDEX

Earnings per share
Employees
Employee involvement
Employees with disabilities
Equal opportunities

25, 101
26
75
76
76

Nomination Committee
Non-underlying items

Operating Committee

Page

Accounting policies
Appointment and retirement
of directors
Audit Committee Report
Auditor
Auditor’s remuneration
Auditor’s report
Annual General Meeting

Board
Borrowing facilities
Business model

Capital commitments
Capital expenditure
Clothing & Home
Conﬂ icts of interest
Corporate governance
Cost of sales
Critical accounting estimates
and judgements

73
42
43
123
78
127

32
112
10

119
25
15
73
30
96

75
118
91, 94, 110
93
86
73
66, 69
77

Deadlines for exercising voting rights
Deferred tax
Depreciation
Derivatives
Diluted earnings per share
Directors’ indemnities
Directors’ interests
Directors’ responsibilities
Directors’ single ﬁ gure of
remuneration
Disclosure of information to auditor
Dividend cover
Dividend per share

58, 69
77
126
101, 123

Finance costs/income
Finance leases
Financial assets
Financial instruments
Financial liabilities
Financial review
Fixed charge cover
Food

Going concern
Goodwill
Groceries Supply Code of Practice

Hedging reserve

Income statement
Intangible assets
Interests in voting rights
International Financial Reporting
Standards
International
Inventories
Investment property

Key performance indicators

Marketplace
M&S.com

FINANCIAL STATEMENTS

Page

Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement of
ﬁ nancial position
Consolidated statement of
changes in equity
Consolidated cash ﬂ ow statement

Note
1 Accounting policies
2 Segmental information
3 Expense analysis
4 Proﬁ t before taxation
5 Non-underlying items
6 Finance income/costs

88
89

90
95
96
96
97
98

Income tax expense

7
8 Earnings per share
9 Dividends
10 Employees
11 Retirement beneﬁ ts
12 Marks and Spencer

Scottish Limited Partnership

13 Share-based payments
14 Intangible assets
15 Property, plant and equipment
16 Other ﬁ nancial assets
17 Trade and other receivables
18 Cash and cash equivalents
19 Trade and other payables
20 Borrowings and other
ﬁ nancial liabilities

98
112
110
92
111
22
126
15

77
91
76

86
91
74

90
16
92
87

14
16

99
101
101
102
103

106
106
108
110
110
111
111
111

111

40
97

3
28
74
74
77

Page

27-29
54
51
58

Plan A
Principal risks and uncertainties
Proﬁ t and dividends
Power to issue shares
Political donations

Risk management
Remuneration policy
Remuneration Committee
Remuneration Report

Segmental information
Shareholder information
Share capital
Share schemes
Signiﬁ cant agreements
Statement of cash ﬂ ows
Statement of comprehensive income
Statement of ﬁ nancial position
Stores
Subsidiary undertakings

95
127
74, 119
74, 106
75
89
86
87
16
123

Taxation
Total shareholder return
Trade and other payables
Trade and other receivables
Transfer of securities

Variation of rights
Viability statement

24
67
91
92
74

74
77

21 Financial instruments
112
22 Provisions
118
23 Deferred tax
118
24 Ordinary share capital
119
25 Business combinations
119
26 Contingencies and commitments 119
27 Analysis of cash ﬂ ows given in the

statement of cash ﬂ ows

28 Analysis of net debt
29 Related party transactions
30 Subsequent events

Company ﬁ nancial statements
Notes to the company
ﬁ nancial statements

120
120
121
121

122

123

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